Top 5 Reasons why Business Valuation is Beneficial for Start-ups and MSMEs

If you did not carry out business valuations over the last 12 months, then it’s time you should consider it. Business valuation gives deep insights into the current value of the company in terms of market capitalization, asset value and income flow. Business valuation plays an important role not only for giant corporations but also for startups and MSME sectors. If you are a startup or an MSME enterprise, then here are the top reasons why business valuations are beneficial to you.

1. Raising Funds from Investors: If you are a startup and seeking to raise funds from investors, then you need to present a proper business plan and financials. This includes present financials as well as future projections. However, you need to determine the valuation of your startup before going for funding. The investors will go through the current valuation of your startup and how much are you planning to raise and at what valuation.  
2. Bank Financing: If you are planning a huge capital investment for a project and need to obtain bank financing for the same, you will need to submit your financials. This also includes the valuation of your business. The bank or the financial institution will determine the valuation of your business before deciding the amount of finance to be extended to you. 
3. Mergers and Acquisitions: Mergers and acquisitions are some of the most complex transactions and involve the consideration of various factors. Companies enter into mergers and acquisitions either to eliminate the competition or to collaborate and gain synergy benefits. In the case of mergers or acquisitions, it is important to determine the company valuation of the amalgamating company. This plays a key role in determining the purchase consideration of the business. Further, the company acquiring the other entity wants to ensure that they do not pay more than what the other company is worth. 
4. Knowledge of Company’s Net Worth: Business valuation helps the founders and owners know the net worth of the company. Determining the company valuation takes into consideration of all the assets and liabilities of the company which gives better insights into the business.
5. Better Decision Making: Business valuations enhances the quality of decision-making. It helps determine which division of the company is making profits and which are the loss-making divisions. What’s the current net worth and how can it be increased? Here’s a real-life example. Adani Group’s valuation in 2015 was $16 billion which soared to $240 billion in 2022. However, the roots of achieving such a high valuation were laid down in 2015 itself after a high-profile discussion between Gautam Adani himself and the CFO Jugeshinder Singh. Now, they are planning to take the group valuation to $1 trillion. That’s how businesses make decisions and strategise when they are aware of their business valuations.

The following were the top 5 reasons why business valuation is beneficial for startups and MSMEs. For company valuation, only registered valuer are allowed to undertake the valuation of the companies as per the Companies Act, 2013. In case you need any assistance with respect to the valuation of your business, feel free to contact the ASC Group.