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Six Benefits of Monitoring Company Value

Updated on: Jul 13th, 2021


4 min read

Business valuations usually are undertaken in the event of a sale, acquisitions, mergers in the life of an organisation. A company that is not on sale also needs to be monitored to measure the value of the company. This ensures that the company is aware of the valuation and enjoys benefits like creating awareness and planning among business owners. It also gives the stakeholders an insight into the valuation and improves the quality of decisions made.

There are many benefits of periodically monitoring company value. The following are the main six benefits that monitoring the business over the life of the business offers:

Generates Value Report Card

Just like financial statements, the independent valuation offers a report card of the financial health of the business. Business heads can use this to align, educate and focus the teams on maximising enterprise value. The Board of Directors and owners can use it as a measurement tool to hold management accountable for value creation. This will add value only if it is conducted periodically.

Enables Equity Transaction

During the life of the business, there will be multiple scenarios where the shareholders would want to transact in the equity; retiring owners would want to redeem the stock, employees would like to buy equity. At these times, the biggest barrier is the valuation of the business and can cause delays in the transitions. Hence an independent valuation is the fastest route to a consensus on the value and quick execution.

Test Shareholder Agreement

Business valuation can be used as a test to understand the composition of the shareholder buy-sell agreements from a valuation perspective. This test will ensure that the valuation terms are not ambiguous, do not produce unfair share value, and does not lead to disputes among shareholders. This will also ensure a timely review of the agreements, and a valuation expert can also help in identifying the potential problems.

Versatile Planning Tool

A valuation can also provide a solid foundation for strategic planning and a clear roadmap to increase value. This valuation can provide the shareholders with a retirement plan, insurance buying, and other important decisions of their life that involve considerable monetary investment. Without these valuations, shareholders will be in the dark and will have to keep guessing the value they would be entitled to.

Education For Executives

Valuation sets the tone of awareness and education among the owners and leadership teams. It will help them understand what factors drive or diminish business value. Also, it helps them to be prepared for all the requirements in the event of an actual buy-sell or acquisition.

Ensure Compliance

Certain companies are required by law to conduct periodic valuations for financial reporting purposes. Therefore valuation also ensures compliance and adherence to laws.
Business Valuations can be used as a powerful tool to understand the position of an organisation and take long term decisions. It can also serve as a tool to draw attention to the factors that can cause damage to the value of the business.

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.

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Quick Summary

Business valuations are essential for sales, acquisitions, mergers, and continuous monitoring of a company’s worth. It helps in decision-making, equity transactions, testing shareholder agreements, strategic planning, educating executives, and ensuring compliance with laws. The benefits include generating a value report card, expediting equity transactions, testing shareholder agreements, enabling strategic planning, educating executives, and ensuring legal compliance.

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