Sunday, October 21, 2007
The Seven Benefits of Annual Business Valuations for Family Businesses By Robert M. Clinger Iii
Most owners of privately-held businesses believe that they know what their company is worth. As they have worked to build the business, often from the ground up, they feel that their intuitive value conclusions accurately reflect the fair market value of the firm. In many cases, these business owners are biased in their views towards the firm, and therefore, have an inflated sense of value associated with the business. Though a business owner has their own opinion as to what the business is worth, their value may differ substantially from the value that could be realized in an arms length transaction between a willing buyer and a willing seller. Without a formal valuation of the company, the business owner often has nothing other than a gut feeling to support the value that they attach to the business.
Many business owners are reluctant to hire an independent valuation professional to conduct an initial valuation of the company (let alone an annual valuation) if the! y do not perceive the need for one. In many cases, there is little perceived need for the owner of a very small business to have a valuation performed, unless of course the owner plans to leave the business to children, needs a loan from a bank when the company's assets alone cannot support the loan, or seeks to sell all or part of the business. These business owners often are individuals who have started or acquired a "lifestyle" business-a business that provides the owner with a job and enables the owner to maintain their desired lifestyle. The lifestyle business could be thought of as a hobby for the business owner-a hobby that earns the owner money.
As compared to a lifestyle firm, some entrepreneurs seek to establish a transgenerational enterprise-a firm that is skillfully managed to create long-term value and wealth for successive generations. These firms typically exhibit the same seven characteristics of successful transgenerational enterprises-a compelling! vision, professionalized management team, a long-term ownersh! ip plan/ strategy, effective communication, good corporate governance, a clear succession plan, and a comprehensive strategic plan. As a result of the need to ensure and evaluate successful creation of transgenerational wealth, many privately-held and family-owned businesses, particularly those that have survived multiple generational transfers, have instituted a policy of having an independent business appraiser/financial analyst conduct an annual valuation of the firm.
Many firms of various sizes and different phases of the corporate life cycle have recognized the benefits of having an annual valuation conducted. The most commonly cited benefits of an annual valuation policy include the following:
Accountability and Performance-An annual valuation of a privately-held firm enables the shareholders to see the value that is being consistently created or destroyed by the management of the firm in its execution of the corporate strategic plan. Over time, if the execu! tive management of the firm consistently fails to create value through the increase in the estimated fair market value of the company's shares, the shareholders may seek to replace the management team with a group more capable of executing the strategy and creating value for the shareholders. In addition, an annual valuation may enable the shareholders to identify the need for substantial change to the strategic plan if that plan consistently fails to create the level of value anticipated. Overall, the annual valuation promotes accountability and provides clear performance measurement.
Source: http://www.articlebiz.com/article/100003-1-the-seven-benefits-of-annual-business-valuations-for-family-businesses/
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Many business owners are reluctant to hire an independent valuation professional to conduct an initial valuation of the company (let alone an annual valuation) if the! y do not perceive the need for one. In many cases, there is little perceived need for the owner of a very small business to have a valuation performed, unless of course the owner plans to leave the business to children, needs a loan from a bank when the company's assets alone cannot support the loan, or seeks to sell all or part of the business. These business owners often are individuals who have started or acquired a "lifestyle" business-a business that provides the owner with a job and enables the owner to maintain their desired lifestyle. The lifestyle business could be thought of as a hobby for the business owner-a hobby that earns the owner money.
As compared to a lifestyle firm, some entrepreneurs seek to establish a transgenerational enterprise-a firm that is skillfully managed to create long-term value and wealth for successive generations. These firms typically exhibit the same seven characteristics of successful transgenerational enterprises-a compelling! vision, professionalized management team, a long-term ownersh! ip plan/ strategy, effective communication, good corporate governance, a clear succession plan, and a comprehensive strategic plan. As a result of the need to ensure and evaluate successful creation of transgenerational wealth, many privately-held and family-owned businesses, particularly those that have survived multiple generational transfers, have instituted a policy of having an independent business appraiser/financial analyst conduct an annual valuation of the firm.
Many firms of various sizes and different phases of the corporate life cycle have recognized the benefits of having an annual valuation conducted. The most commonly cited benefits of an annual valuation policy include the following:
Accountability and Performance-An annual valuation of a privately-held firm enables the shareholders to see the value that is being consistently created or destroyed by the management of the firm in its execution of the corporate strategic plan. Over time, if the execu! tive management of the firm consistently fails to create value through the increase in the estimated fair market value of the company's shares, the shareholders may seek to replace the management team with a group more capable of executing the strategy and creating value for the shareholders. In addition, an annual valuation may enable the shareholders to identify the need for substantial change to the strategic plan if that plan consistently fails to create the level of value anticipated. Overall, the annual valuation promotes accountability and provides clear performance measurement.
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Robert M. Clinger III has strong experience in the fields of business valuation and financial analysis, having earned the Accredited Valuation Analyst (AVA) designation from the NACVA and the Certified Business Appraiser (CBA) from the Institute fo Business Appraisers. More information on business valuations/appraisals may be obtained by visiting Highland Global's website http://www.HighlandGlobal.com .
Robert M. Clinger III has strong experience in the fields of business valuation and financial analysis, having earned the Accredited Valuation Analyst (AVA) designation from the NACVA and the Certified Business Appraiser (CBA) from the Institute fo Business Appraisers. More information on business valuations/appraisals may be obtained by visiting Highland Glob! al's website http://www.HighlandGlobal.com .
Source: http://www.articlebiz.com/article/100003-1-the-seven-benefits-of-annual-business-valuations-for-family-businesses/
Free Business Articles Blog
# posted by Kek @ 4:31 PM 
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