Business owners often consider their company as their most valuable asset, but determining its worth requires a formal valuation. Nuri Benturk, senior vice president of Investment Banking Solutions at RBC Wealth Management–U.S., emphasizes that "a valuation provides a clear picture of the true market value of your business."
This information is crucial for planning future strategies, whether it involves succession planning, selling the business, or transferring ownership. However, an RBC Wealth Management survey in 2024 revealed that 41 percent of business owner clients have never conducted a valuation analysis.
Many business owners perceive the valuation process as costly and complex. Yet Benturk suggests it might be simpler than expected. A business valuation considers both tangible and intangible factors such as assets, liabilities, profitability, and growth potential to assess overall worth. Typically conducted by third parties like wealth management firms or appraisers, valuations offer an objective view of a company's performance.
Benturk notes that sometimes "owners lose sight of what their business is actually worth," making valuations essential reality checks. Professionals use various approaches based on market conditions to determine a company's value.
Understanding a business's worth enables informed decision-making in several scenarios. According to the survey, nearly 30 percent of RBC Wealth Management’s clients plan to sell or transition their businesses within five years. Valuation plays a key role in effective transition planning and optimizing sale prices through cost reduction and margin improvement.
Conducting valuations early allows time for strategic changes before seeking buyers or discussing transitions with partners. For those considering further investment in their business, valuations provide insight into past returns and guide future capital allocation.
Bill Ringham from RBC Wealth Management–U.S. highlights the connection between estate planning and business transition planning: "That’s why it’s especially important for owners to work with a coordinated team of experts." Valuations can help identify tax-efficient strategies for reducing estate taxes and fulfilling philanthropic goals.
For family businesses or companies with multiple owners, knowing the valuation aids rational discussions during buyouts without emotional influence.
Wealth management firms may offer informal valuations free of charge to clients who provide financial statements and tax returns. Formal valuations cost between $30,000 to $50,000 according to Benturk but are more comprehensive and involve collaboration with industry experts.
Ultimately, even formal valuations are estimates subject to market dynamics when selling occurs. Benturk compares this to real estate websites estimating house values: "It’s a good starting point...but what you actually sell it for depends on the market."
When ready to sell or enhance strategic planning efforts, working closely with financial advisors is vital for navigating future decisions confidently.
RBC Wealth Management advises consulting independent advisors for legal or tax advice regarding transactions related to accounts managed by them.