I’ll figure it out when I’m ready to retire…. That is the response that we get from many small business owners when we ask this.
You know the value of your home. You know the value of your stock portfolio. Shouldn’t you know the value of your business? Many business owners use a multiple of the revenue produced which is a crude approximation of a business worth according to Entrepreneur.com. But of course revenue doesn’t mean profit. Warren Buffet uses a discounted cash-flow analysis tied to long term T-Bill interest rates which can be confusing. The wealth of nearly 70% of all small business owners is tied up in their businesses and because many of them don’t know the value of their business, they don’t know the lifestyle they can expect in retirement.
Here are several reasons why its beneficial to have a business valuation conducted:
- Having the information to be able to properly plan for retirement.
- Be able to justify the asking price for your business when you decide to sell or merge. A recent business valuation facilitates a negotiation between the entities.
- The information will help guide you through strategic business decisions and plans, supporting your long- term goals.
- Need a capital infusion? Lending institutions and investors will be better able to evaluate the business before investing or loaning money.
- Insurance planning. Most small business owners do not have adequate insurance coverage. Without knowing the value of the business, its challenging to recover losses.
- Considering an Employee Stock Ownership Plan? It is required that your company disclose its value to employees with company stock each year.
- There are possible tax benefits that you might not claim without a valuation report. A valuation is also a requirement for estate tax settlements, determining capital gains tax liabilities and for income or property tax disputes.
- Because business interests represent marital assets, they could become part of yours or a shareholder’s divorce settlement.
- Just like in a divorce, when a business partnership dissolves, the parties must find a fair and equitable way to split their business interests. A business valuation will help to facilitate a fair process.
- Determining that it may not be the right time to sell. After you deduct from the business valuation any business debts, selling costs, taxes, and figure out all that you take out of the business each year like health and car insurance, business meals, etc., it may make more sense to wait.
Create the future you want by arming yourself with the knowledge you need.
Wise business owners have a valuation performed to make sure that their business is gaining value, not losing value.
Get started with our FREE Business Valuation Questionnaire.