Why Every Business Owner Needs a Valuation
“Why do I need to know the value of my business today if I’m not ready to sell?”
This is a question we hear all too often; if I’m not ready to sell, why do I need a business valuation? A comprehensive business valuation provides the business owner with essential information that can be used to guide future strategic planning. Our experience tells us that the average privately held business changes hands every 7-10 years. With that in mind, whether you are ready to sell now, or 10 years from now, you must know what your business is worth today so that you can plan for the future.
Most business owners have between 65-90% of their net worth tied to their business, making it their single largest asset. That asset is the result of years of sweat equity, sleepless nights, long hours and hopefully rewarding results. It provides for your financial needs. You are personally proud of what you have accomplished, as well as, your good name in the community. Someday, inevitably, you will decide that the time is right to sell it.
Regardless of where you are, or think you are, in the business ownership life cycle, start to ask yourself these questions.
- Do you know what you need to live comfortably in your retirement? Do you have other assets set aside to assist in this cost? Is your business your largest asset? Is your business your retirement plan?
- What happens when you find yourself faced with the reality of burnout?
- What if you have health issues?
- What if the market is changing and significant investments are required in order to compete with the competition? Are you at a point where you can comfortably decide to sell now and let someone else take the business forward? Or will you be forced to ride it out, perhaps putting your business and your family in a financial bind, as you make the necessary adjustments?
- Do you think your business is worth a certain amount? Are you counting on that to be true? What if it’s not? What if you are dramatically wrong and your actual value is much less than you anticipated? Will you be prepared to keep going?
The point to all of this is that a business valuation can provide you a basis for starting to answer the questions above. A business valuation can help to provide you with a roadmap (Business Plan) for determining:
- What adjustments you need to make to increase revenues and profitability
- When to diversify service offerings
- Customers – Do your revenues come mainly from one or two customers? What if those customers leave? What is your plan for adding new customers?
- When to hire additional staff or let someone go. Are you a key piece of the business and how would you be replaced by a new owner?
- Curb Appeal – How does your building look? Sometimes a basic cleanup makes a world of difference.
- Equipment – do you require capital improvements and will a new owner be required to make those investments and ultimately impact your value
If you’re not sure where you stand on any of the items above, then a business valuation can help you. You should assume that your competition knows what their business is worth and you can’t afford to be in the dark. The economy has recovered from the 2007 recession and is thriving, SBA-backed loans are being granted more frequently and more buyers than ever before are entering the market looking to invest. At Viking Mergers & Acquisitions, we can tell you the value of your business and how to prepare for the day you decide to sell, at no cost and no obligation. Find out the value of your business today so that you can better plan for your future.
Trevor Crocker, Senior Advisor at Viking Mergers & Acquisitions