Why Business Valuations Matter for Succession Planning

Author: Matt Kemler, Director, Business Owner Advisory Services

Busy with day-to-day operations, many business owners overlook one action that could significantly impact their livelihoods: conducting periodic business valuations.

Too often, owners wait to obtain company valuations until they are:

adding a new partner
approaching retirement
transferring ownership
responding to an unsolicited offer to sell or merge

When business valuations happen under pressure, owners may face knowledge gaps that reduce bargaining power and limit strategic options.

By contrast, periodic business appraisals give owners time to:

understand the drivers behind business value
identify operational strengths and weaknesses
prepare for succession or ownership transitions
make more informed long-term decisions

Performing a business valuation at least every three to five years, can help business owners prepare for the unexpected while strengthening long-term planning. Whether it is a professional, credentialed valuation or an estimate based on market data, having a valuation is essential for understanding your business environment and planning for future decisions.

Key Takeaways: What Business Owners Should Know

Periodic business valuations help owners prepare for succession planning, ownership transitions and major business decisions.
Conducting a business valuation every three to five years can strengthen long-term planning and reduce uncertainty.
Business valuations provide insight into financial health, operational performance and the drivers of business value.
Understanding business value can support retirement, estate and ownership transfer planning.

How Business Valuations Can Be a Tool

Business valuations do more than determine what a company is worth today. They provide insight into financial health, operational performance and long-term readiness.

This insight allows owners to:

strengthen operational practices
address financial weaknesses
improve profitability
protect long-term business value

Rather than focusing only on a final valuation number, business valuations can reveal the underlying drivers influencing company performance. By acting on this information, owners can make necessary operational changes and protect the value of the business over time.

Additional benefits of periodic valuations include:

How Business Valuations Support Financial, Estate and Succession Planning

Every business owner will eventually leave the company. Whether they exit on their own terms often depends on preparation. Understanding how business value changes over time can strengthen succession planning, whether the transition is to family, key employees or a third-party buyer.

For many business owners, their retirement will depend on the eventual sale or transfer of their company. Valuations help owners maintain a clearer picture of the company’s transferable value so they can prepare for future liquidity needs or adjust their retirement timeline as needed.

For business owners looking to leave a family legacy, business valuations can help create more transparency and minimize emotional disputes when building a succession plan for the next generation or preparing a family estate plan.

In any scenario, a valuation equips a business owner with clarity to better strategize for the future they envision.

How to Obtain a Business Valuation

There are several types of valuations, and business owners first need to identify the purpose of the valuation, such as:

Determining the likely sale price of their business.
Understanding the value of their business if selling or transferring to children or key employees
Estimating tax consequences of an ownership transfer
Improving long-term business strategy (e.g., benchmarks for key employees)

Understanding the purpose helps advisors focus on the information most relevant to the business owner’s goals.

Through its Business Owner Advisory Services, FNBO offers valuation estimates for planning and can connect owners with advisors who offer certified business valuations.

FAQs

What is a business valuation?

A business valuation is the process of determining the economic value of a company. It helps business owners understand what their business is worth, identify the factors that influence business value and make more informed planning decisions.

Why is it important to update business valuations regularly?

Periodic business valuations help owners understand how business value changes over time. They can support succession planning, retirement planning, ownership transitions and other important business decisions.

How often should a business valuation be updated?

The appropriate timing depends on a business owner's goals and circumstances. As a general guideline, conducting a business valuation every three to five years can help owners maintain an understanding of their company's value and prepare for future decisions.

How do business valuations support succession planning?

Business valuations help owners by providing clarity to make informed decisions for long-term strategic planning. This information can support succession planning whether ownership will transition to family members, key employees or a third-party buyer.

Why should a business owner get a business valuation?

Business owners may seek a valuation to estimate a potential sale price, evaluate a transfer to family members or key employees, understand ownership transfer implications or support long-term business planning. Identifying the purpose of the valuation helps ensure the analysis addresses the owner's specific goals.

About the Author

As a Business Owner Advisor, Matt Kemler uses his extensive legal and business expertise to help business owners navigate complex transition and succession planning challenges. His work focuses on providing customized advisory services that connect business owners with strategic solutions for their future goals.

Matt Kemler