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.

Value Driver #4: Human Resources

At first glance, it may be difficult to see how human resources can function as a value driver for your business. Most of the time when we think “value” we think about reducing costs and increasing profits. Human resources, though, has a role to play, and it is not a minor one. How employees are recruited, trained, and disciplined are all under the purview of the human resources department. Additionally, HR usually handles decisions about various costs, such as insurance, and those decisions most certainly impact a company’s value.

In many ways, it is the employees who create the value of any company. Whether you offer a product or a service, it is your employees who make sure that your customers are happy and satisfied. Strong systems can help, but without equally strong employees, even the best systems will fail to build the value of your business. Since HR selects and trains new employees, it is critical to the value of the company overall.

Just as all departments within a successful business follow set policies and procedures, HR should have a clear delineation of responsibilities. How should HR work with other departments to make sure that key positions are filled? What are the policies regarding hiring, disciplinary action, or company benefits? When and how are employee reviews conducted?

Business valuation experts consider the length of service of key employees, the companies’ approaches to filling important positions, and overall employee morale, along with many other factors when they determine the worth of a business. The human resources department shepherds the company’s most important asset: people.

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.

Strategic Planning Tools

The elements of a good strategic plan are the same for almost any business. How owners and managers arrive at those elements can differ. 

Here are some links that will help you decide how to go about creating a strategic plan that works for you and your company:

SmallBusinessChron.comcovers SWOT Analyses, Mind Mapping, and more in their article "Four Tools Used in Strategic Planning for Marketing and Sales." 

There are many ways to analyze in addition to completing a SWOT Analysis.This article fromReferenceforBusiness.comgoes into detail about some of the other types. If matrices and charting are helpful for your thinking, be sure to check these out! 

The Research Administration Performance Improvement and Development (RAPID) Department at the University of Washington has compileda list of tools and templates to help in strategic planning. It's an excellent list, with some helpful graphics.