Do you know the value of your business? I mean, the real, sellable market value of your business. I’m guessing you don’t. In my daily work with small business owners, I never ceased to be amazed how many don’t know what their business is worth, and it’s often my un-pleasant task to deliver bad news to a business owner about the value of their business.
I don’t suggest that you over-focus on your business value, but you should at least have a reasonable understanding of the metrics of valuation. Here are the times in your business life when knowing your business value will be important to you:
• Retirement Planning – Eventually everyone retires, is unable to continue working, or cuts back on work time. If you don’t know the worth of your business, you will be unable to estimate whether bowing out of your business can still provide you the income you will need in retirement to maintain the lifestyle you currently enjoy.
• Succession Planning – If you plan to hand your business down to family members or trusted employees, you need to know the value today and an estimate of what it will be at the time of the passing ….. will that person be able to afford it?
• Tax Planning – Most business transitions will trigger a tax implication. If you don’t know your valuation, you won’t be able to estimate your tax liability. I’ve seen way too many examples where business owners were un-prepared for the tax implications.
• Estate Planning – News flash: we’re all going to die sometime. Planning for your own demise is not all that much fun, but every business owner needs to be sure their loved ones are properly cared for after they pass on. Again, business valuation is the first step to accurately plan for the needs of your family.
You wouldn’t a vacation without planning your travel itinerary, your flight arrangements, or your hotel reservations. The way I see it, running a business without knowing its value is like traveling without a map. Don’t be that guy.