Business compliance keeping you awake?
Cleartax's wide range of compliance services is here for you
Explore Now

Why Valuing Your Business Can Enhance Its Value

Updated on: Oct 12th, 2021


5 min read

social iconssocial iconssocial iconssocial icons

Valuation of the business is often undertaken in case of conflict or litigation to determine sale price negotiations, financial planning, or even succession planning. But the benefits of valuation that are often ignored are that the process acts as a catalyst for enhancing the value of the business by making more informed decisions. A valuation can often result in a reality check. The owners will be able to determine if their business is overvalued as it is a human tendency to overvalue the assets. It helps businesses ensure it has the right debt structure and identify the focus areas to enhance their business.

The following are the ways in which business valuation will help to enhance the value of the business:

Forensic Understanding

A business valuation gives a more forensic understanding of the business. It gives a fair picture of the expenses that must be reduced, the revenues that can be improved, which will result in higher profits and increased cash flows. Better knowledge of the business eventually leads to lowering the risks or being prepared for facing them. Over a period of time, higher cash flows, increased profits, and reduced risk can increase the value of the business.

Health Check

Business Valuation is a complete health check of the business and not just a summary of profit and loss. This helps the business to strategically plan going forward and ultimately enhance the overall business value.

Identify Weakness

A business valuation helps in identifying the weakness in its operations or a process. This identification can help the business perform at its optimal. It could be as simple as reducing costs or better inventory management or training staff to upskill them.

Determine the Driving Value

Business valuation not only helps in identifying the weakness but also highlights the driving value of the business. Businesses can concentrate on these areas and enhance the value of the business. Value drivers are the areas that have a significant impact on the performance of the business. It could be innovative technology, human capital, brand recognition or client base. Businesses can focus on these areas and derive optimum value for their business.

Risk Profiling

Business valuation is a tool to conduct risk profiling of the business. Valuation is not determining the value of the business for the owner; instead it is determining the transferable value of the business. Transferable value is based on the risk factor attached to the business. What may seem to be a great value driver by the business owner can be viewed as a risk attached to the business by the potential investor.
An example of this is where the client base composition is determined by one or two top clients determining 50% or more of the income. For the business, it might look like an advantage, but for the investor, it determines great risk. The business with a more diverse client base will attract more value.

Debt Restructuring

A business valuation will save the business from being overvalued and hence prevent going overboard with debt creation. So business valuation helps maintain a good debt structure.

Periodic valuation of the business can add great value to the business, mitigate risk, and help the business grow substantially.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

inline CTA
Get an expert at affordable price
For ITR, GST returns, Company Registration, Trademark Registration, GST Registration

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use


ISO 27001

Data Center


SSL Certified Site

128-bit encryption