Why It’s Important to Know Your Business’s Value

Know your business's value

Estimated reading time: 4 minutes

The more you know about your business (not just business in general, but your specific business), the better – plenty of benefits come with that knowledge that can help you in the future, no matter what your plans for the business might actually be. This is so much more than just curiosity (although that will probably play into it); it’s about being armed with all the information you could need to boost your business and take it as far as you want. With that in mind, read on to find out exactly why it’s essential to know your business’s value. 

Planning Ahead 

If you run a business, one of the most important things you need to do is plan and have a well-thought-out strategy to take you from where you are now to where you want to be in the future (hitting all the benchmarks and milestones). Without a plan, your business is going to struggle, there’s no doubt about it, and even if you do manage to get to where you think you ought to end up, there’s no telling how long that’s going to take or what challenges you’ll meet along the way. A plan takes away all that indecision and confusion and puts you on a straight path – it’s a much better way to run a business. 

So, what are your plans for the future? Expansion into new markets? Research and development? Finding great partnerships? Whatever it is, whether it’s these ideas or any others, knowing how much your business is worth will help you make the right choices and meet your goals more quickly. 

Attract Investors

For many businesses, there will come a point when an investor is needed, and securing funding for the next step is vital. This could be right at the start of your business venture, or it might be many years into running it, but no matter when it happens, knowing your business’s value will be essential if you need to attract an investor (or more than one). 

Investors are putting their own money into any business they decide to work with, so they’re going to want to know all the ins and outs (especially related to finances), and they’re going to want to work out all the risks they might be taking on. If they know how much your business is worth, they’ll know how much risk they’re taking and how much money they might want to invest. Don’t think about ignoring this fact; a savvy investor is going to know they need their facts and figures before they can make a decision, and since an intelligent investor is precisely the kind of person you’re looking for, you’d better make sure those facts and figures – including your business’s valuation – are in place for them to see right away. 

Exit Planning

You’re not going to run your business forever, are you? Unless you mainly dream of working for the rest of your life without being able to take time to enjoy your retirement, likely, one of (and perhaps the main) reasons you’re building up your business is so you can sell it at a later time and live off the proceeds, or at least step back from running it and have an income (perhaps through dividends) without actually working. Whatever the specifics, you’ll need to develop an exit plan, and knowing your business’s valuation will help with that. 

There’s a lot to think about when it comes to a successful exit plan, and whatever industry you’re in is going to dictate what those things to think about are – if you’re in the entertainment industry, for example, you’ll have to factor in a music copyright valuation, and so on, which is why this isn’t something that can be left to the last minute – or left to chance. If you want to leave your business without any stress or hold-ups, knowing its valuation will be a definite asset, and learning how you intend to step away from it all is vital. Hence, it’s probably a wise idea to start thinking about this sooner rather than later. 

Help With Performance 

If you don’t know what stage your business is currently at, how will you improve? Even if you try hard, you won’t know if your ideas are working because you won’t have anything to measure things up by. However, if you know your business’s value and then put some of your performance-boosting ideas in place, you can have your business re-valued and see if there’s a difference. If things are better, you know you’ve done the right thing, and if things are the same (or worse!), you need to adjust how you’re doing things. 

You can also use your valuation to ensure you always work as hard as possible – with a specific value to chase, and you’ll be much more motivated to do whatever you can to reach it.