Why Get a Business Valuation?

23 Jan 2023 - Simon Palmer - Vet Practice Valuations

ValuVet has been valuing vet practices across Australia for over 25 years.

Many people feel that the only time to get a business valuation is when you are about to buy or sell a business. While this is a reason that many people come to use our services, there are actually many, many reasons that business valuations are needed.

Here are the top 10 reasons why people are requesting valuations be done on their business (note, these reasons are not in any particular order).

  1. To set a price when selling a practice

Some people who are selling their practice will set a price themselves and base their appraisal upon:

  • their (often misunderstood or misapplied) understanding of articles they read online about valuation techniques or
  • what a friend in the industry said that they received, for what sounds like a similar practice (buyers and sellers are often unreliable narrators of their own transactions and the metrics of their practice) or
  • what they need to pay off loans and achieve for their lifestyle post sale.

A vendor valuing their own practice gives the perception of being emotionally compromised, and it often leads to disastrous results. It could mean that they either miss out on substantial value (if they undervalue) or price themselves out of a sale entirely (if they overvalue).

Getting a professional appraisal done:

  • allows a level of objectivity in the appraisal, as it is done by an independent industry professional
  • means that the valuation is based upon known comparatives
  • gives the buyer and their banks a structured approach for how the value was arrived at.

2. To do exit planning 

Getting an appraisal several years before selling allows the seller to identify weaknesses in the practice that could affect the achievable price if it were to be listed for sale, and do some course correction if necessary, in order to get a better result. 

3. To plan for retirement

Many people are relying upon the sale of their practice to help fund their retirement. If you are in this category, getting a sense of what your practice is worth should help you get a sense of when you can afford to retire.

4. To do business planning

Even if you don’t plan on selling, getting a regular valuation is a great way to measure business improvement and create a strategic roadmap to create value going forward, and shape the future growth of the company. 

5. For partnership buy-outs 

Partnerships don’t always work out. If a part-owner decides they want out of a partnership, an independent business valuation will usually be required to arrive at a fair settlement of ownership interest.

6. For succession planning/internal divestment

If your exit plan involves a partial or complete internal sale to an employee in the practice, the price will usually be set via an objective, independent business valuation. Internal sales may be planned years in advance, and getting an appraisal done early can help all parties understand the size of the pending transaction better and prepare for it. 

7. In order to price a practice for purchase 

If your career strategy includes buying a practice or merging with another practice, a business valuation will help you determine if the price you are being asked to pay is a fair one.

8. In order to fund other purchases 

If you are looking to borrow money for any reason, you may need to secure the loan against your assets. If you are ever looking to secure a loan against your business, your financier may need an objective valuation to be done. 

9. For insurance reasons

Business owners will sometimes pursue a valuation to determine a value necessary to cover their business’s value if something were to happen to them. If something happens, the insurance could pay out the value to the owner’s family to continue the owner’s role or buy themselves out of the owner’s role.

10. For Divorce 

If a business owner is going through a divorce, an appraisal is usually needed for an equitable division of assets.

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