Business Owners: What Is Your Number?
Do You Truly Understand What Your Business Is Worth, and Why Knowing That Is Important?
There are around 29 million businesses with fewer than 500 employees in the US, representing almost half of total private sector employment. No wonder small business owners like us feel like Atlas carrying the world on their backs. “Baby Boomers” own the vast majority of these businesses and the facts are simple: Boomers are aging and will be transitioning their businesses in the coming years. The question is, will they be proactive and control the transition to optimize the outcome for themselves, their families, and their employees? Or will they wait and see how nature forces the issue for them. My view? Let’s start with a plan. Where should we start? A business valuation.
Traditionally, the value of a privately held company represents upwards of 75% of the owner’s overall net worth. And this is where a misunderstanding of business value is often uncovered. The majority of business owners do not really know with confidence the actual value of their company. Furthermore, business owners tend to be emotionally attached to the business they have worked so hard to build for so many years. Their perceived value of the business is often vastly inflated in comparison to what an actual buyer (Strategic, External, or Internal) of the business would be willing to pay. The reality of the actual value not meeting expectations and yet representing the majority of the owner’s wealth will have far reaching consequences on the personal financial goals and those of his family and legacy beneficiaries.
To avoid the risk of anchoring your financial planning around a perceived value of your largest asset that may be potentially far from accurate, we recommend obtaining an objective, accurate business valuation. Once this value has been obtained, we can apply it as a base line for planning purposes to achieve the financial freedom and security the owner is seeking. Timing is everything. With a few years advance planning, Optimized Business Transitions will integrate the business valuation, an operational assessment process to develop and implement business growth and transition strategies, and personal financial planning to uncover opportunities to secure and grow the business value, put the control over the transition process squarely in the hands of the business owner, and secure long-term financial freedom for the owner and his/her family and beneficiaries.