Many small business owners do not know how to value their company or what equations can reasonably be used to determine the valuation of a company. Not understanding the small business valuation model puts small business owners at a disadvantage when seeking out investors or bank loans. They may go into meetings unprepared or prepared with inaccurate information, which will make them look like they don?t know what they are talking about.
As a banker, working for a bank that works with small business owners, it is important to understand the small business valuation model and how to explain it to the small business owners that come to the bank for help.
The problem with the banker knowing and understanding is that teaching a small business how to determine their valuation and taking the time to value the company is a lot of work. If there was guaranteed business, this work might be worth it, but without a full understanding of the potential business, many bankers simply do not have the time to invest.
This is why a business valuation service or business valuation software can be an invaluable investment for a bank that is targeting small business owners as potential customers. Business valuation is primarily an economic analysis exercise. While a small business owner may be brilliant within their specific field of interest, this doesn?t mean they aced economics class when they were in school.
Nearly 50% of people surveyed expressed trust in their bank. As a banker, it is important to let your clients know they can count on you to help through sort through the financial mess and get the services they really need to make their business grow.
The first step t helping a small business owner determine the value of their company is by determining why they need a valuation. The next step to assemble all the information they will need to create a valuation. While the small business owner has to assemble the needed information, their banker can help by explaining to them exactly what they will need and why.
Part of the reason a small business valuation model may be hard to explain or understand is because business valuations are not absolute. There is more than one why to value a business based on why the valuation is needed, and valuations are truly subjective to a number of factors. Two people can assign a value to the same business but come up with completely different numbers.
