Business valuation can be the key to unlock the door to reaching your goals and your Pathway to Success.
I have been amazed by business owners and their advisors who ask "Why do I need to know the value of my business?" This may be less surprising, but as we enter the 2nd year of the pandemic the question has shifted to "Why now?"
Our business partner BizEquity democratizes business valuation knowledge for the business owner. Business owners fuel our economy, they create jobs, they foster community, they are the lifeblood of the cities and towns we live in. So, it didn’t seem fair that 98% of them don’t know the value of their business.
The answers to the questions above are simple. As a business owner, virtually all of your outcomes depend on the value of your business. So, how can you possibly plan properly and make good decisions without knowing the value of your business?
Let’s take a look at why you need to know, and more importantly, why you need to know Why Now.
You deserve to know -
As a business owner, we believe that you deserve to know the value you have created with your life’s work. Moreover, a valuation should not be:
A one-time event
Informs critical decisions All critical decisions made as a business owner should be informed by the impact on the value. Business owners make decisions all day every day, but several times a year they are making key, strategic decisions for their business. Those decisions need to be informed and you need to understand how that decision one way or the other impacts your business’ value.
Example: Do I hire in marketing, sales, or client service? Do I invest in this new technology? Do I open a second location? Do I take on this contract? All these decisions are made more difficult if you do not understand the impact to the value of the business.
What gets measured, gets improved
Peter Drucker’s words are as true today, as ever. As a business owner, knowing your value creates accountability. Depending on your goals, you now have a guiding light. Without knowing, how do you know year to year if you are on the right track? Other numbers can be misleading. If I use revenue as my guiding light, I may lose sight of profitability, and not all revenue is created equal. Profit? I may not be creating value, or transferable value, in my business. Again, having an understanding of value allows you to measure and improve.
Identify opportunities to drive value
One of the greatest advantages of understanding your value and looking at it annually (at the minimum) as a business owner, is your ability to affect change on that value. There are levers, or key performance indicators, that business owners can pull to drive value in their business. Return on Equity is under-performing my industry peers by 8%? Or my debt-to-equity ratio is off by 12%? These are things that can be optimized for business value and having the business value and KPI’s benchmarked allows you to make adjustments. It is very difficult to make the right decisions time and time again while flying blind. Knowing your value and what drives that value today, allows you to increase that value tomorrow.
Create positive financial planning outcomes
As a business owner, how could you possibly do any of the following properly without knowing the value of the business?
Assess Capital Structure
78% of business owners plan to fund their retirement through the sale of their business, yet 98% don’t the value themselves. Knowing the value of your business, and monitoring it often, allows you to create positive outcomes, that would otherwise be guesses. Far too often, the business walks into a meeting with a business owner to create a retirement or succession plan and the conversation goes like this: