Strategic / Exit Planning | Critical Role of the Business Valuation

Strategic Planning Requires Understanding of Business Value

Developing a successful strategic plan requires a deep understanding of your business’s value. This is because apart from the important number itself, or as we like to provide, a valuation range, a state-of-the-art valuation process and service will identify the associated risks and key value drivers of the business. Without this understanding, it’s difficult to make informed decisions about the future of your business.

Types of Strategic Planning Where a Business Valuation is Critical

There are several types of strategic planning where a business valuation is critical. These include:

  • Strategic Decisions of Department, Business Unit, or Subsidiary Performance: Critical for the individual department analysis and how it impacts the entire business.
  • Capital Raising: Understanding the capital requirements and structure of the business can be solved by the valuation process, identifying the optimal structure and its impact on the business’ value via in-depth cost and risk analysis.
  • Debt Funding: When securing debt financing, lenders often require a business valuation to assess the risk associated with the loan.
  • Evaluation of Investments: When evaluating potential investments, or those existing on the balance sheet, a business valuation is a critical component of the due diligence process and financial reporting.
  • Management Compensation via Equity/Options: When compensating management with equity or options, it’s essential to determine the value of the company and the individual instruments to ensure fair compensation, and in accordance to financial reporting responsibilities.
  • Expansion Planning: Expanding your business requires careful consideration of its value, providing answers to how the business can fund such an expansion, will the expansion increase the total risk of the business both from a short and long term view?
  • Strategic planning Direct With Exit Planning: Exit planning is as the name suggests, exiting, in any number of ways from the business, which upon exit, you will need to transition the wealth at a particular price. Those who are proactive, through the valuation process will try to influence the value of the business to get the most advantageous price.
  • Estate Planning: The business valuation is essential to estate planning as if done proactively, allows for the estate to be structured in the most advantageous manner, and once finalized, the detailed valuation report is designed to minimize the risk of audit, investigation, penalties and improper taxation by the IRS.
  • ESOPs (Employee Stock Ownership Plans): When implementing an ESOP, the business’s value is a critical factor in determining the number of shares to be sold to the ESOP and their value. This is critical as it ensures the employees are fairly compensated, you as the owner are fairly compensated, the succession of the business is given the most success and, the risk of audit, penalties, and potential litigation are minimized.
  • Mergers and Acquisitions: When considering a merger or acquisition, it’s essential to know the value of the business to be informed for negotiations, not simply from a price point of view, but finding the optimal firm to merge with or acquire via risk analysis, and key value driver analysis.
  • Succession Planning: Planning for the future of your business requires an understanding of its value, it supports the transition of ownership from one party to the next, and having an accurate and timely business valuation will provide the best information and support in this succession.

Types of Business Valuations and When They are Appropriate

At InteleK we have designed specific valuation types to suit the various valuation purposes, all customized to the individual engagement. We have a lot of success guiding clients through all the strategic and exit planning scenarios with the correct application and use of our valuation products and services. (See our case studies here)

Often what is required for strategic planning is not a detailed report, but rather an indicative valuation. The best way to think of this is, the detailed report is required for the valuation purpose that dictates outside scrutiny, e.g. a partnership dispute that is in litigation, or the IRS for estate tax. For the strategic planning purposes, these are the initial steps where the valuation is useful for internal decision making, so the lengthy report is not required. What is most useful, is an indicative value, where a valuation range is provided, and the accredited appraiser will communicate to / educate the business owner on what are the factors that will drive the business’ value to be at the top, middle or bottom of the range. This process is always fruitful, not simply from the valuation range itself, but the identification of associated risks, and key value drivers.

The last stage of exit planning is once the exit has taken place, this is where a detail appraisal report is required, as submission to the IRS, the DOL, or potential buyer to name a few. InteleK’s accredited appraisers deliver highly defensible conclusions of value built from their state-of-the-art valuation processes, complete with citations and support.

How to Take Advantage of Exit Planning through Business Valuation

Exit planning is an essential part of running a successful business. However, it can be a complicated and emotional process. Our business valuation experts can help you take advantage of exit planning by providing a clear and objective understanding of your business’s value. With our expertise, and the knowledge you will gain from undertaking the valuation process, you can make informed decisions about the future of your business and ensure a successful exit.

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Meet InteleK’s Leaders

Andrew Mackson, CFA, ABV
co-founder & Partner
Cameron Braid,
Co-Founder & Partner