Deep Clean Your Financials for a Better Valuation

Deep cleaning your financials braces you for the future, especially when it comes to business valuation. It entails going through each nook and cranny of the company’s financial life to pinpoint and fix what’s not working and establish the systems you need to keep the business running. 

How Deep Cleaning Helps in Business Valuation
Whenever you deep clean your finances, you always emerge from the process with an insight into how close the business is to attaining its short-term and long-term goals. It also gives you an intimate understanding of your assets and liabilities. As a business owner, you’ll only know where you stand if you have an idea of how much the enterprise is worth.
After running a business for a while, estimating its worth can be a challenge. Most people don’t even think about it until they need to sell their businesses or bring in new investments. Having a valuation placed on the company means you can tell bakers, potential buyers, or even investors that it’s worth a certain amount. Taking a hard look at the company's finances is an easy way to determine its worth. Doing it regularly helps you establish the right systems and fortify the enterprise for a better valuation later. 

Tips for Deep Cleaning Your Finances 
Deep cleaning your finances provides an excellent opportunity to determine how well the business is running. Ultimately, you’ll be able to estimate its current worth and predict its valuation in the coming years based on the expected income. Here are some tips for deep cleaning your finances for a better business valuation. 

Evaluate Your Accounts
Company accounts are a great place to start when cleaning up your finances. One of the first things you should do is assess how much cash is in the accounts, how much you owe debtors, and what you are paying in interest. Knowing how much money the business has and its debts gives you a rough estimate of its financial position.

By staying abreast of how much the business is worth, the chances of getting an even better valuation in the future will be high. Avoid associating asset value with business valuation when assessing your accounts because the two entities are separate.

Suppose your retail business owns a warehouse worth $1 million, products and supplies worth $500,000, a fleet of supply trucks worth $100,000, and financial backing of $300,000. If you sell your business assets, you’ll receive $1.9 million. However, that’s not how much your business it’s worth. Instead, the figure only relates to the disposable cash tied up in the company.

When valuing your company, evaluating your finances goes beyond determining the value of the assets you have. Also account for the assets’ appreciation/depreciation and other factors. For instance, if someone buys your warehouse, they probably don’t want to sell it at a higher price. Rather, they’re more interested in the money they can make by shipping goods from the building.
  
Work Out Current and Expected Profitability
Profitability is a sure way of determining your company’s valuation. An accurate valuation of the business involves determining the money it currently makes and the profit it will likely make in the future. Buyers, investors, and other interested parties always want to know how much money they’ll make when they take over or invest in the company. 

When determining your company’s current and expected profits, remember that it won’t generate the same profit every year. For this reason, profitability adjustments are necessary for determining growth. As you deep clean your finances during your business valuation, don’t forget to examine the company’s historical financial data, the market’s expected growth, and even your competitors’ progress. 

Clean Up Your Debt
Admittedly, most businesses have a significant debt-to-income ratio. Carrying huge debts can affect the value of your business. It’s often difficult to tell how much debt you owe suppliers and other parties until you take a look at your finances. Without doing that, you may think the business has nominal debt and end up valuing it higher.
Determining your debt gives you an accurate picture of the value of your business. It’s also essential when tackling your debt burden for a better valuation later on. Furthermore, it helps you to restructure your debts and implement repayment plans that don’t bar you from accomplishing the company’s financial goals. 

While cleaning up your debt, you may also want to order the company’s credit reports. For instance, an annual credit report compiles your history of paying off debt and managing credit over the past year. It includes crucial information such as the debt you’ve accumulated, how the company pays its bills, and whether you have lawsuit judgments made against you. Factoring all these provides you with a better valuation of your business. 

Review Your Company Budget
Regardless of how small your company is, it needs a budget. Sadly, few business owners ever think about their company budgets when undertaking a valuation. With any significant life event, including business valuation, you need to assess your monthly and annual spending and reexamine your overall budget. If your business scales or wins a new contract, the budget needs to get adjusted accordingly to ensure you’re still on the right path. 

As you deep-clean your finances, review your budget, and pinpoint expenses that demand more money. In the same breadth, identify areas where you can cut back realistically without undercutting operational efficiency. Monitoring your spending gives you a clearer outlook of the business and ultimately helps you have an accurate valuation later on. 

Toss Out the Waste
Typically, deep cleaning a home reveals a lot of waste that you previously didn’t know about. That’s also bound to happen when you deep clean your finances. You’re likely to unearth processes, systems, and habits that could be hampering your operations and business value. For instance, you may realize that a vendor you’ve been relying on doesn’t add that much value to your supply chain. 

Regardless of the amount of tidying up that needs to be done, a proper deep clean helps you to toss out habits that cost the business. Often, businesses carry the burden of investments they can’t afford to maintain in the long run. Unearthing and tossing out such during your deep clean will guarantee a better business valuation. 

Final Thoughts
Deep-cleaning your finances does more than merely help you to streamline operations. It gives you a deep insight into how the company is performing and areas that need improvement. Like any other discerning business owner, you need to place a cash value on the company. There’s no better way to tell how much the business is than reviewing its finances. Even if you’re not a financial expert, deep cleaning your finances will help you figure out how much your company is worth.