Working through the steps of a company valuation
When a business gets to a point when venture capital is needed, sometimes that’s when the heaviest lifting might take place. Though, it’s less about actual hands-on work and more about thinking deeply about your business and where it stands — and what the future may hold.
Business valuations do go through a process, but there are many twists and turns. Some questions that will be asked by investors may be relevant for one company but not for another. It’s definitely among the most critical steps a company can take.
We’re sharing some of the things that businesses may expect when it comes to valuation. While not every situation is the same, most of what we talk about below will be relatable to industries in and around the Beehive State.
When it comes to seeking funding, First Utah Bank also has some resources for businesses, including term loans for the times when money is needed for specific needs as a business grows and scales.
How valuations may take place
An investor in Utah companies seeking capital, Curt Roberts writes in Utah Business that most valuations begin with a multi-step process:
- Discussions on industry and opportunity size
- Data evaluation on performance
- Evaluation of the business model
- Effectiveness of management team
As Roberts points out in the story, that last step may be the most subjective, but it’s also sometimes the most important. “We are placing extraordinary trust in the team’s ability to figure it out along the way,” Roberts writes. “The more confidence we have in a team, the more risk we feel we can take with deal terms, all other things equal.”
Even with these four steps, other facts are gleaned from the process that cross those boundaries and that may be crucial in receiving the funding that’s needed. Here’s what he suggests business owners think about:
The founders and what they own
Maintaining original ownership, despite the evolution of businesses, tends to look well on a company and its founders who want to demonstrate commitment.
Future financial potential
Yes, there is a concern about future rounds even as you start your first valuation. Taking market changes into account for the current round will help address any issues with balances in funding between rounds.
Raising the right amount of money
While a cushion isn’t a bad idea, it’s also important to not take too much in the first round. More money means more risk and for some companies, that’s not as good of an idea in the first round.
All the options available for funding
It’s standard for founders to try to get capital funding from multiple sources, and that is a good thing. It’s also easier to compare and contrast the terms being offered from more than one source.
When you may need to find out your value
While it’s clear that venture capital is one reason to receive a business valuation, it can also be taking place for other reasons beyond that. Financial news website The Balance went into the typical reasons that a business owner would go through the process.
Mergers, sales or purchases of a business
If any of these are taking place, you’ll likely need valuations for any type of transaction related to these, and it’s often something asked for by lenders and creditors before any financing, or financing changes, take place.
Tax planning or succession
Finding out the worth of a company is vital in estate planning, as well as figuring out tax liabilities.
It’s common for company valuations to take place in legal settlements to determine damages. It’s also data used to resolve partnership disputes as well as a part of divorce law.
Finding out where you stand now is never a bad thing. Getting a valuation from a trusted source can help you better understand your growth potential and what may drive profit-making abilities for your company.
The power of business lending for Utah companies
First Utah Bank can counsel businesses and provide funding solutions that help businesses at any point in their life. Our series of term loans are particularly good for building up the business coffers in a way that is measured and sensible for any business owner.
Term loans are a good way to have a specific amount of money available to fit your needs as they become apparent. This type of business lending gives Utah businesses the option to meet distinctive needs or purchase assets.
The loan is on a predetermined schedule based on monthly principal and interest payments. Loan rates are usually fixed, but they can be variable depending on your business needs.
Among the uses for these types of loans are long-term working capital, investment in commercial real estate, commercial vehicle purchases or business debt consolidation, among other options.
Talk to our business loan officers to see how term loans or other types of business lending in Utah might benefit your small business. Learn more at our website, or call First Utah Bank at 801-308-2265.