My Business
is Worth WHAT?!?!
In my career as a small business advisor
and Certified Valuation Analyst (CVA), I
have had many conversations with small business
owners regarding the value of their business.
Too often, the conversation goes something
like this…
Business Owner: “I’ve
had it. I think it’s time to retire.
I’m going to sell the business. How
much is my business worth.”
Me: “Let me ask you – How
much do you think it’s worth?”
Business Owner: “I
really don’t know, but if I had to
guess, I’d say around $2.5 Million.”
Me: “Well, actually,
based upon the last several years’ results,
you might find if we did a valuation of your
business, the number may come out closer
to around $500,000.”
Business Owner: “That’s
impossible! I can’t retire on that …”
And so it goes. That’s probably not
what you were hoping to hear, is it? Sorry,
but in many cases the conversation above
is reality. The good news is that this doesn’t
have to be you.
The simple fact is that most business owners
don’t think about what their business
is really worth until they are ready to retire,
and that’s usually 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 (and I do mean ANY)
steps to maximize their return on their years
of investment.
That is a symptom associated with owners
that spend too much time working IN their
business and not enough time working ON their
business. These owners don’t think
in terms of selling their business at some
point in time. Frequently, they view the
business as a vehicle that provides them
with an income, and there is a rather fuzzy
thought or picture in their minds involving
a sale of the business to fund their retirement.
Consider this…For
most business owners their business is the single
largest asset they have.
At the time of retiring, the average small
business owner does not have a fully funded
pension or 401(k) plan; most will have a
personal residence that has only recently
had the mortgage paid off, and only some
will have a significant non-retirement investment
portfolio. Remember, these are only averages,
so your circumstances 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.
It has been said that as the Baby Boomer
generation retires, about $10 Trillion worth
of businesses will be transferred to the
next generation of ownership over the next
20 years. Therefore, you should be asking
yourself these questions:
- Do I really know
at 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
my business in my retirement planning?
- Did my investment advisor consider the
value of my business when determining my
portfolio asset mix? Did they classify
the LLC I set-up to hold the business’ land
and building as equity or as real estate
or did they consider it at all?
It helps if you think about the family business
as an investment just as you would shares
in Exxon or Microsoft. The sale of a business
is almost always a very emotional ordeal
for owner/managers and, as we can all probably
attest, emotion is not always helpful to
us in reaching sound financial decisions.
Our experience has been 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, you need to keep in mind that there
are some big differences between your business
and publicly traded stocks, beyond the emotional
issues. 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 both to your
advantage, but only if you start planning
now! 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 (and I would suggest should)
eclipse the value of your other assets at
the time of your retirement or the sale of
your business.
Alliant Advisors can not only provide you
with an independent valuation of your business
today, but we can also be instrumental in
ensuring that your business practices are
maximizing your business value for the future.
Let us show you how.
Business valuations are performed for a
variety of reasons, including the following:
- Selling all or a partial interest of
a business.
- Buying all or a partial interest of
a business.
- Mergers.
- Corporate or partnership dissolution
or recapitalization.
- Divorce.
- Buy-sell agreements.
- Gift, estate, inheritance, and income
taxes.
- Charitable contributions.
- Estate planning.
