You may or may not have made New Year’s resolutions this year – but one of the things I advise my clients to do on at least a yearly basis is to step back from the day-to-day operations of their business and take a longer view. The first of the year is an excellent time to take stock of your business and consider long-term goals. One important item to look at is: how up-to-date is your business valuation? Do you actually know what your business is worth?
Before asking that question, however, you may be asking why it’s important to have an accurate business valuation. After all, isn’t that something you need to know, really, only if you are in the process of selling your business? Not necessarily. There are a number of good reasons to have a yearly business valuation done.
For one thing, if you are like the majority of business owners, a major portion of your net worth is tied up in your business. If you are assuming that your business is worth what it was valued at even a few years ago, you could be vastly under- or over-estimating your own assets. Either way, if you don’t really know how much your business is currently worth, you can’t time your retirement from the business in such a way as to achieve your life goals.
If you are counting on the sale of your business to fund your children’s or grandchildren’s education, or enable you and your spouse to travel or buy a second home, or even to make it possible for you to pursue a second career or future business venture, you want to be certain that you can comfortably fund these goals. You don’t want to be stuck working for many more years than planned, just because you over-estimated the value of your business based on outdated information.
And what if you’ve under-estimated your business, and it is worth more than you think? That information could also help you prioritize the timeline for retiring from your business. You might find that selling your business while it is on the upswing, and investing the proceeds wisely, could ensure a retirement income that more than covers your desired lifestyle. The unpredictable nature of the economy is such that delaying the sale of your business past its prime could put you on a less than secure footing in your later years.
Even if you know you don’t want to sell your business any time soon, an accurate valuation can give you options for financing expansion or diversification of the business that you may not realize are possible. Knowing how your business is realistically positioned in your industry can be a valuable asset in attracting new clients or co-investors.
If you find the right professional advisory team to assist you in making a current business valuation, those advisers can also help you increase the value of your business so that next year’s valuation shows significant growth. It’s all about taking control of your own future. The more clearly you know what your business is worth, the better positioned you are for whatever the next steps are that you choose to take.