Written by More than 90% of businesses have never have never had their business independently valued and every business owner asks themselves one question every morning, “Am I better off today than I was yesterday?”
Michael Carter who wrote the book “What’s Your Business Worth” says, “Knowing the value of a business can change the life of a business owner – especially over time.”
Confirming the value of your business results in better decisions. It will help you protect your most important asset and is the most logical place to start when making decisions about protecting the value of your business.
As a business owner you have a good handle on sales, expenses, budgets and financial projections. Assuming you have a good bookkeeping system and a dedicated CPA you have a financial dashboard to help you track your progress. But is this enough? Why should you know the value of your business. Why isn’t an educated guess good enough?
On the right hand side of the graphic we look at the three possible results for an owner’s own valuation estimate. What if you undervalue your business. You either end up selling the business for less than what it is worth or take unnecessary risks to grow the value. Using a rule of thumb multiple might correctly estimate the value however there is no way to confirm if this is correct, possibly leading to a lack of conviction when making decisions. When your business is overvalued this can lead to a great disadvantage if this is only discovered during times of negotiations.
Knowing and understanding the value of the business will help you make better business decisions. Knowing and understanding why the value is what it is will help you grow business value.
You also want to know at least four different value conclusions. For most businesses the Asset Sale Value is the most relevant number. As a business grows in size then the Equity Sale Value becomes the number to focus on. Asset, Equity and Enterprise Value all look at the business as an ongoing concern. But what is the liquidation value? It is a worst case scenario. It is the result of not planning. Business Value Protection Planning is the best defense against you or your family having to settle for the liquidation value of the business.
Many businesses represent more than half of all the owner’s wealth. It is the source of income supporting the family’s lifestyle. The liquidation value of a business is often 66% to 75% less than the asset value of the business. Understanding the value of your business will help you focus on what it at risk.
Business value is protected with coordinated Succession, Retirement, Estate and Key Stakeholder Plans.
Knowing the value of the business and having it confirmed by an independent valuation helps you make better and more confident decisions about your business and how to protect its value.
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If you would like to know more about Business Value Protection Planning and how to start with a valuation of your business please fill out the form below. Add your phone number in the message box along with a good time for us to call.