My business is worth WHAT?!?!
As a Chartered Business Valuator (CBV) I’ve had the
following conversation too many times…
Business Owner – “I’ve
decided it’s time to retire. How much is my business worth?”
Advisor – “How much do
you think it’s worth?”
Business Owner – “I
really don’t know but, if I had to guess, I’d say around $2.5 Million.”
Advisor – “Well, uhhhh, actually, you might find that if we did a valuation
of the business, it may only be worth about $500,000.”
Business Owner – “That’s
impossible, I can’t retire on that…”
And
so it goes. That’s probably not what you want to hear is it? Sorry, but in many
cases the above is reality. The good
news is that it doesn’t have to be you.
The fact is most business owners don’t think about what their
business is worth until it’s too late. The vast majority of owners don’t plan
for the sale of their business and as a result they don’t take any (and I do
mean ANY) steps to maximize their return on their years of investment.
That’s a symptom associated with owners that spend too much
time working IN their business and not enough time ON their
business. These owners don’t think in terms of selling their business at some
point in time. Frequently, they view the business as a vehicle that provides
them with an income and there is a rather fuzzy thought or picture involving a
sale to fund their retirement.
Consider this…
For most business owners their business is the single largest asset they have.
At the time of retiring the average business owner in
You should be asking yourself these questions:
1. Do I really know what my
business is worth?
2. Have I had a professional business valuation
prepared recently?
3. Do I know what factors drive the value of my
business?
4. What things should I be doing right now
that will influence the value I receive when it’s time to retire or sell?
5. Should I be making some provision for the
business in my retirement planning?
6. Did my investment advisor consider the value
of my business when determining my portfolio asset mix (equities and fixed
income securities)? Did they classify my
holding company’s investment in land and buildings as equity or as real estate
or did they consider it at all?
It helps if you think about the family business as an
investment just as you would your shares in BCE or your GIC’s.
The sale of a business is almost always a very emotional ordeal for
owner/managers and, as we can all probably attest, emotion is not always
helpful to us in reaching sound financial decisions.
Our experience has been that owners frequently think of
their business “as their baby” because of the years of work (sweat and tears),
nurturing and growing the business. The business, whether we want to admit it
or not, has wound its way through our lives and impacts on almost everything we
have done since we started it.
However, you need to keep in mind that there are some big
differences between your business and publicly traded shares beyond the
emotional issues. You need to know that two of the biggest differences are:
1. There may not be a ready market for your
company, and
2. The market price for your business can vary
significantly depending on the purchaser you are able to attract.
Of course, you can influence both to your advantage, but
only if you start planning now! It’s never too early to adopt this mindset.
It’s no coincidence that the things that will increase the value of your
business will make your business life more rewarding and enjoyable!
Your business, if properly run and prepared for sale, could
(and I would suggest should) eclipse the value of your other assets at
the time of your retirement or the sale of your business.
Your RAN ONE firm can be instrumental in ensuring that your
business practices are maximizing your business value.
In the next edition of ValuationVIEWS
we will discuss some of the more common value drivers for your business that
you need to know about.
