Are you worried if you’re investing your time effectively? Are you concerned about the worth of your business? Do the competing companies and their increasing popularity leave you wondering if you are doing it right?
Well, if so, it’s time for you to get factual and numeric about your business’s performance. You cannot judge your business’s worth based merely upon how it appears on the surface. You need to get into the depths, observe and analyze the input to output ratio, compare that to the competing names. And only then, you’d be able to address your concerns and worries. Only doing that will unveil if you are making the right investments or not.
Plus, monitoring your company’s value will assist you in directing your business to more profitable pathways. How so? Let’s look at that in the benefits section below. But before we get to that, let’s get our basics of business valuation clear.
How to Monitor Company Value?
In business terminologies, we formally term the act of monitoring company value as business valuation. It is a process or method of determining a business’s economic worth.
A business valuation usually comes into play when a business seeks to collaborate with other businesses or when the business owners wish to sell their business. It may even come in handy to improvise the overall performance, more of which we will discuss below.
As for the monitoring process, here’s a brief step-by-step guide to business valuation:
Step 1: Define Goals & Objectives
Firstly, you need to know about your business’s desired output. What is your hustle based on? Do you wish to generate more profits? Do you wish to get more traffic to your online store? Do you wish to enhance your business model such that the production of goods is more efficient? Is it your poor customer service that’s failing your otherwise successful business?
Once you have your Critical Success Factors sorted, you and your team will have a clear sense of direction.
Step 2: Determine Metrics to Track
Following that, now you need to determine measuring aspects that will help you achieve your business goals. You can evaluate sales metrics, marketing metrics, financial, or even online metrics.
For doing so, you can utilize various tools available online. For example, if your business revolves around stocks, you can access all key metrics and even find stocks to trade via Trade Ideas, Stock Rover, Scanz, etc. These dedicated stock screeners enable users to evaluate market data as specifically as they desire. Thus, making competitor’s data available for comparison at a click.
Related: Stock Sale Agreement Template
Step 3: Choose a Valuation Approach
After you have all the necessary data collected and gathered in your hand, it's time you choose a valuation method that best suits your business model. Some of the most popular valuation methods are:
- Market Capitalization
- Revenue Generation Overtime
- Liquidation Value
- Book Value
- Earnings Multiplier
- DCF Method (Discounted Cash Flow) – Calculator
You can read more about them here.
Step 4: Make the Most Out of it.
Now that you have the data, it’s time to make the most out of it. If you are selling your business at the moment, then it will give you higher bargaining power. Similarly, if you are collaborating or giving a portion of your business, knowing your company’s worth will help you settle for a fair share.
Top 6 Benefits of Company Value
Even if you are not indulging in either of the two, monitoring your company value can benefit you. Read on to unravel how exactly.
1. Assists Strategic Planning
Your analysis of the company’s performance brings forth the strong and weak aspects right in front. With this evaluation, you can have a clear idea of your strengths and weak area. And that, in turn, gives a clear idea of the domains you need to invest more of your time and resources in. Thus, propelling your business towards a more successful route. Also, it helps sketch a retirement plan for shareholders.
Related Tool: Strategy Designer™
2. Helps Evaluate Current Company Health
As mentioned earlier, monitoring a company’s value is equivalent to figuring its economic worth. As a business owner, you would want your business to gain a higher economic value after each financial year. You know, static profit graphs will keep the business going but not prospering. So, regular valuation will keep you informed about your company’s health, whether it’s blooming or just existing.
3. Educates Executives
When involved in a business, the business becomes more of a lifestyle than a project. Most of your days revolve around improving the business and yielding better profits. And this is true for business owners and authorities.
For them, business valuations serve as educational resources which add to business knowledge and experience. These evaluations do not only help them make better decisions at the current business but also educates them for future ventures.
4. Double-Checks Legal Positioning
For most business owners, their business begins as a small dot in a sea of many. Their beginnings may be frail. But with intensive input each year, they aim to lay solid foundations to the business and make their business stand prominently in the market.
Doing business valuations assists with the very goal. It helps strengthen a business legally. When a business can prove that it can generate a certain named amount, they are freer to access the business perks, such as acquiring the SBA (Small Business Association) loans.
5. Scrutinizes Shareholder Agreement
Even if you have all good intentions towards your business partner, at times, the flow of work can be overwhelming. Thus, leading to unintended deviations from the agreement, which may lead to unsolvable disputes if not addressed timely.
Related: Buy-Sell Agreement Template
Regular monitoring of a company’s value can help avoid such disputes as both shareholders would be well aware of what’s going on and how so.
6. Facilitates Equity Transaction
In financial terminologies, equity refers to the ownership of any such assets that have liabilities involved with them. Consequently, equity transactions refers to either buying or selling mutual funds/stocks. An ongoing business valuation makes equity transactions super easy and fluid as all necessary data that may be required by any of the involved parties is readily available.
Summing up, monitoring your company’s value will not only benefit you in your current dealings but will also determine a promising path for the future. You can even define an exit plan with annual business valuations. Plus, once you develop this as a healthy habit of your business processions, it will help you stay in charge and growing at all times!