wHAT IS YOUR BUSINESS WORTH?

 “If business schools could offer just one course, it … should be encouraging students to learn the boring, but critically important, discipline of business valuation.”

                                                                         -- Warren Buffet

Three-quarters of small business owners have less than $100,000 saved for retirement, according to a 2016 survey by BMO Wealth Management. Just 8% have over $500,000 saved for retirement, and 4% have over $1 million. Many business owners hope to fund their retirement years by selling their business. They are “significantly less likely” to have diversified retirement assets than their own employees do. They are therefore more at risk of not having enough money in retirement or suffering from market downturns which affect the value of their business, and therefore, the money they are able to receive from their business when they really need it for retirement. 

“I can’t retire on that amount.”

I’ve valued and sold businesses for over 12 years. I can’t tell you how many times I would meet with business owners ready to retire, and when I valued their business, the real market value was far less than they believed it to be. Yet, due to age, burn out, business failure, etc. they did not have the time to grow the value and change it. It was too late. Sometimes it was heartbreaking. If only they had done planning in advance, knew the value of their business and what was devaluing it, and had the time to fix it! 

THOSE WHO FAIL TO PLAN, PLAN TO FAIL.

If business owners don’t know the value of their business, even if they do planning in advance, how can it be accurate? If you are making an assumption that your business is a certain value, but it really isn’t, how can you effectively plan and ensure that you get the value you want and need when it comes time to sell your business or retire? This is where business valuations become so very important. 

WHAT IS A BUSINESS VALUATION? 

A business valuation is a review and assessment of your business’ earnings, projections, business trends, and key assets and liabilities, as well as determine other matters that could affect the value. It allows you to get a handle on your business, assess your own position and address any issues that help you increase value and make your business more marketable, long before you plan to or need to sell. 

BENEFITS OF A BUSINESS VALUATION 

While timing and effective negotiation certainly factor into the success of your ultimate sale, you might be surprised to see how sell-side due diligence can also positively influence your sale value. This process keeps your focus on the items that create the most value and allows you to minimize areas that could raise red flags. Consider these benefits:

Gain a thorough understanding of your own financial position and produce accurate financial information.

Streamline the purchase process. Allow your investment bankers and management to focus on the overall process. A professional providing sell-side due diligence services also brings experience, resources and guidance if a finance team has not gone through the sales process before.

Provide needed information to assist you and your financial advisor, CPA and attorney help you create a realistic financial, tax and estate plan. 

Mitigate risk. Detect potential issues that could draw out the transaction process or create contention—potentially leading to lower sale values or a broken deal… OR even make a buyer not even want to look at your business at all!

For buyers, a business valuation provides a clear understanding of the factors that could impact the sale and decreases the chance of negative surprises. 

For sellers, it identifies issues that reduce your business value, allowing you time to correct any issues uncovered so they don’t affect a future sale. For areas you’re not able to rectify, you can advise the buyer of these issues during initial conversations and be prepared to respond appropriately to minimize the risk of a failed sale.

Identify cost savings and revenue enhancement. A valuation can identify areas that are reducing value, including identifying adjustments that can positively affect EBITDA or identifying normalization adjustments and preparing the related support. An EBITDA adjustment of $100,000 can increase purchase price by a half-million dollars, assuming a modest multiple of 5! 

Streamline the purchase process. Allow your investment bankers and management to focus on the overall process. A professional providing sell-side due diligence services also brings experience, resources and guidance if a finance team has not gone through the sales process before.

It’s Not What You Get, It’s What You Keep! 

Knowing what to expect can help ensure that the final proceeds are adequate, and allows you to help structure the final sale in a fashion that is most tax-advantaged to you.  The results? You’re prepared for the process, you can make sure your retirement plans can support you in retirement, allowing sufficient time to increase value, diversify your retirement plan, if necessary, correct buyer red flags, and take action to increase value and make your business more attractive to a buyer. 

This low cost valuation can pay for itself many times over. Call me now to get started!