You Should Know what your Business is Worth
You don't know what your business is worth. You are not alone - 65% of all private business owners do not know the value of their business. The fact is most business owners don’t think about what their business is worth until it’s too late. The vast majority of owners don’t plan for the sale of their business and as a result they don’t take ANY steps to maximize a return on their years of investment.
That’s a symptom associated with owners that spend too much time working IN their business and not enough time ON their business. These owners don’t think in terms of building value in their business and realizing that value at some later point in time. Frequently, they view the business as a vehicle that provides them with an income, while only having fuzzy ideas involving a sale of the business to fund their retirement.
Business - Single largest asset for most business owners
Consider this: for most business owners their business is likely the single largest asset they have.
At the time of retiring the average business owner in America does not have a funded pension beyond what they have set aside in their own and their spouse’s IRA; most will have a personal residence that has only recently had the mortgage paid off and less will have a significant unregistered investment portfolio. Remember, these are averages so you may be better or worse off.
In many situations the family business will be the most significant financial asset available to provide for the owner’s retirement years.
If that is your case, you should be asking yourself these questions:
- Do I really know what my business is worth?
- Have I had a professional business valuation prepared recently?
- Do I know what factors drive the value of my business?
- What things should I be doing right now that will influence the value I receive when it’s time to retire or sell?
- Should I be making some provision for the business in my retirement planning?
- Did my investment advisor consider the value of my business when determining my portfolio asset mix (equities and fixed income securities)? Did they classify my holding company’s investment in land and buildings as equity or as real estate or did they consider it at all?
- Are there ways to take some "chips of the table"?
It helps, if you think about your business as an investment just like your Mutual Funds or stock portfolio.
Emotional value versus reality
The sale of a business is almost always a very emotional ordeal for owner/operators and, as we can all probably attest, emotion is not always helpful to us in reaching sound financial decisions.
Our experience is that owners frequently think of their business “as their baby” because of the years of work (sweat and tears), nurturing and growing the business. The business, whether we want to admit it or not, has wound its way through our lives and impacts on almost everything we have done since we started it.
However, beyond the emotional issues you need to keep in mind that there are some big differences between your business and publicly traded shares. You need to know that two of the biggest differences are:
- There may not be a ready market for your company, and
- The market price for your business can vary significantly depending on the purchaser you are able to attract.
Of course, you can influence these factors to your advantage, but only if you start planning early. It’s never too early to adopt this mindset. It’s no coincidence that the things that will increase the value of your business will also make your business life more rewarding and enjoyable.
Your business, if properly run and prepared for sale, could eclipse the value of your other assets at the time of your retirement or the sale of your business.
How to determine the value of your business
Henberger can be instrumental in helping you determine the value of your business and ensuring that your business practices are maximizing the value of your business. If you do not know what your business is worth, contact us and we can help you find out.