“I’ll figure it out when I’m ready to retire” ….
That is the response we get from small business owners when we ask how much they believe their business is worth. Knowing the value of your business is the cornerstone and first step in understanding the business’s past performance. An accurate valuation allows you to determine “Where am I today?” and “How do I get to where I want tomorrow?”.
For most small business owners, the vast majority of their wealth is tied up in their business. For many of those individuals, the business becomes the personal retirement savings vehicle. Those individuals, however, could be driving blind. Without knowing the value of the business, how will they know when they can stop working or the lifestyle to expect in retirement?
Having the information needed to prepare adequately for retirement is just one of the many benefits to a business valuation. Here are several others:
- Increase value. What is measured improves, and valuation is no different than establishing and overseeing a sales quota. A comprehensive business valuation will provide owners with a clear explanation of the value of the business along with evidence to support the result. It can tell an owner if efforts need refocusing, or … even better, if the company is headed in the right direction. The data helps guide strategic decisions and business development plans and can even help an owner determine whether the right people are in place to support long-term goals
- Mergers, acquisitions or share-swaps. A business valuation facilitates a negotiation between entities entertaining a possible merger, acquisition or share-swap.
- Dissolution of partnership or partial exit by an owner. When a business partnership goes bad or partners agree to part ways, the parties must find a fair and equitable split of interests. Whether the weighting shares changes, one partner buys the other out, or the partnership gets dissolved, a business valuation will facilitate the process.
There are other reasons for a business valuation such as tax strategies, divorce, insurance planning and more. The real reason most business owners put off knowing the value of their business could have less to do with timing than an error in perception. Traditional business valuations involve an extensive, expensive, and seemingly invasive process. Thanks to innovative technology, however, those barriers no longer exist. While business owners are often stretched for time, when it comes to discovering how much the business is worth, there’s no time like the present. Whether you are a business owner whom intends to sell their company in 6 months or in 6 years, understanding the value of the business is a critical step in the planning process.
My passion is helping people to understand that step and we welcome your thoughts and feedback. Visit our website at https://www.imgbusinessadvisors.com/ or give us a call at 973-840-2200