Business valuations: Should you do it internally or hire an expert?

A business valuation is an important process that helps shareholders and management determine the worth of a company. It involves assessing various financial and non-financial factors to determine the value of a business. But often, the question arises: should you do the business valuation internally or hire an expert? This article will explore the factors that should be considered when making this decision.

Motivation for Business Valuation

The motivation for doing a business valuation can vary depending on the circumstances. For example, a business valuation may be necessary when seeking investment, selling the company, or creating a strategic plan. The purpose of the business valuation and whether it will be used for management purposes or by external users should also be considered before deciding whether to do it internally or hire an expert.

Complexity and size of the business being valued

The complexity and size of the business being valued can also impact the decision of whether to do the valuation internally or hire an expert. A small business with straightforward financials can handle the valuation internally using basic tools and software. However, larger and more complex businesses may require the expertise of a professional with experience in complex valuation models.

Who is it for?

The need to hire an expert business valuer may depend on who the business valuation is for. If the valuation is for internal purposes, such as assessing the performance of the business or making strategic decisions, it may be feasible to do it internally. However, if the valuation is for external purposes, such as selling the business, seeking investment, or settling legal disputes, hiring an expert business valuer may be necessary. This is because external parties may require an unbiased and independent assessment of the business’s value, which a professional can only provide with the necessary skills and expertise.

Tools, models, and software available and accessible

The tools, models, and software that are available and accessible in-house are important. It may be more cost-effective to do the business valuation internally if the necessary tools and software are readily available. However, if specialised software or models are required, hiring an expert with access to these resources may be more efficient.

Responsibility and regulatory requirements

Who will carry the responsibility for the business valuation? Depending on the situation, the responsibility for a business valuation may fall on the company’s financial team or an external expert. Additionally, regulatory requirements may require the use of a professional and independent valuation expert.

Time and capacity available in-house

The time and capacity that are available in-house should always be considered. If the company’s financial team is already stretched thin, hiring an expert to perform the valuation may be more efficient. However, if sufficient time and capacity are available, it may be more cost-effective to do the valuation internally.

Financial skills and expertise required

The financial skills and expertise required for a business valuation are as important as the capacity and time available in-house. While some basic financial skills may be sufficient for a reasonably straightforward business valuation, more complex valuations may require the expertise of a professional.

Conclusion

Deciding whether to do a business valuation internally or hire an expert requires careful consideration of several factors. Ultimately, the decision will depend on the business valuation’s circumstances, including its purpose, complexity, size, and regulatory requirements. In any case, it’s important to ensure that the business valuation is carried out accurately, efficiently and fit for purpose to ensure a fair and accurate assessment of the company’s worth.

Worth.Business provides a handy platform to do business valuation in-house when so required. If you decide to hire an independent expert, let us know how we can assist. See here for our consulting services.