Why You Need to Know the Value of Your Business

Knowing Business Value is a Very Good Place to Start

In today’s economy, no one wants to spend money on something they don’t need today. So why do you need an estimate of your company’s value when you don’t expect to leave for several or many years?
 
You may not — if you fall into one of two groups:

  • Owners who are sure that their business exits are more than 10 years away.
  • Owners who are certain that the value of their companies is miniscule compared to what they will need upon sale or transfer.

Like most business owners, you’re looking to the value of your business as the chief source of liquidity for your post-exit life. You intend to leave as soon as it’s feasible, rather than when you’re completely burned out. Therefore, you need to know the value of your company now, so you can be smart about creating greater business value as quickly as possible.
 
Knowing the value of your business today is critical, whether you plan to leave your business tomorrow, or in five years, because:

  • An estimate of value establishes your starting line and distance to the finish. An estimate of value tells you where your unique race to your exit begins. Once you know how far you and your business need to travel, you can begin to create timelines and implement actions to foster growth in business value.
  • An estimate of value tests your exit objectives. An estimate of value helps you to determine if your exit objectives are achievable. (If) the estimate of value tells you the distance between today’s value and the finish line is too great…(then) you must either extend your time line or lower your financial expectations.
  • An estimate of value provides important tax information. The estimate of value gives you a basis for analyzing the tax consequences of Exit Path alternatives and provides a basis for your tax-minimization efforts.
  • An estimate of value gives owners a litmus test. When owners know how much value they need to create to meet their objectives, it helps them determine where they need to concentrate their time and effort.  Pursuing exit plan success all begins with a starting value.
  • An estimate of value provides an objective basis for incentive plans. As you design incentive plans for key employees to motivate them to increase the value of your company (so you can successfully exit) you must base these plans on an objective estimate of value.

Failure to Value
On some level, we all recognize that we will leave our businesses some day. Does it make sense to go into that transaction…without an objective understanding of your company’s value?
 
An estimate of value can save precious time as you build value and pursue the exit of your dreams.
 
To read the entire article, ,published by MCM CPA’s, click HERE.
 
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.