Why Is Business Valuation Important?

If you aren’t planning to sell your company, you may not see how value drivers pertain to your business. Wikipedia offers a few reasons:

“In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to

• resolve disputes related to estate and gift taxation,
• divorce litigation,
• allocate business purchase price among business assets,
• establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and
• many other business and legal purposes such as
• in shareholders deadlock,
• divorce litigation and
• estate contest..

In some cases, the court would appoint a forensic accountant as the joint expert doing the business valuation.”

Internal Operating Policies & Procedures as Drivers of Business Value

In July, we discussed the importance of operating policies and procedures in the context of developing a useful (and legal) employee handbook. The quick summary is that having policies and procedures in place:

• gives your business a guide for growth,
• provides some legal protections, and
• makes it possible to see changes over time.

Today, we will talk about internal operating policies and procedures as drivers of business value. Whether you are getting ready to sell your company in the next few years, or you are working toward creating the most value in case you decide to sell much later, having policies and procedures in place will contribute to making your business worth more.

Internal operating policies and procedures help make sure everyone knows what to do and when and they reduce risk in the case of unexpected events. A strong and functioning set of policies and procedures could dictate whether or not the business would continue to function in the case of a sale -- or a key employee leaving, an unexpected weather event, or some other potentially business-stopping situation.

While policies and procedures serve as a guide for employees, they can also serve as a historical record of how the company responds to change. When policies don’t work, they should be reviewed and changed. Being able to appropriately react to real circumstances makes a business worth more.

You can review the information we shared about creating an employee handbook on our blog. Links to additional resources are here.