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6 Reasons to Understand the Value of Your Business

Updated: Feb 12, 2021

I’ll figure it out when I’m ready to retire, which is the day after never ….

That is the response I get from small business owners when I ask how much their business is worth. So, if you are a business owner, there’s no time like the present.

Here are the 6 top reasons why you need to know the value of your business.

1. Exit Strategy & Retirement

You need the information to prepare for an exit strategy and retirement.

Without knowing the value of the business, how will you know when you can stop working or the lifestyle to expect in retirement?

For many of individuals, the business becomes the personal retirement savings vehicle.

With nearly two-thirds (67%) of all small business owners’ wealth tied up in their business, they are driving blind if they do not know the value of their business.

2. Goal Setting

What is measured improves, and a valuation is no different than you setting and overseeing a sales quota.

A comprehensive business valuation provides you with a clear explanation of the value of the business along with evidence to support the result.

3. Strategic Decisions

The data helps you guide strategic decisions and business development plans and can even help you determine whether the right people are in place to support long-term goals.

It tells you if efforts need refocusing, or … even better .. if the company is headed in the right direction.

4. Insurance Needs

Nearly three-quarters (75%) of small businesses do not have adequate insurance coverage.

When an owner doesn’t know the value of his/her business, it is challenging to determine how much insurance is needed.

If an owner is injured or has a life event, a valuation helps determine long term needs.

5. Tax Strategies

A valuation report can lead to tax benefits an owner might not otherwise claim.

A current valuation is required for estate tax settlements, to calculate capital gains tax liabilities, and for income or property tax disputes.

A company must disclose its value to employees to satisfy annual requirements for Employee Stock Ownership Plans.

6. Capital Needs

Outside investors and lending institutions will evaluate the business plan, shareholders’ agreement, investment memorandum, and valuation before investing or loaning capital.

The real reason most business owners put off knowing the value of their business could have less to do with timing than an error in perception.

Traditional business valuations involved an extensive, expensive, and seemingly invasive process. Thanks to innovative technology, however, those barriers no longer exist.

While you may be stretched for time when it comes to discovering how much your business is worth, so if I can help you understand your business's value, take that first step in the Pathway to Success and schedule a free strategy session with me!

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