Do you know what your business is worth? It’s a very important question but one that many business owners can’t answer. Business owners tend to only consider the value of their business when they decide to put their businesses up for sale. Having an understanding of what your business is worth will allow you to maximise investment opportunities, achieve financial security in retirement, make informed strategic decisions in your business and ensure a favourable outcome if you decide to sell.
Why understanding the value of your business is important:
- Putting Your Business Up For Sale
If you are planning to sell your business at some point, knowing what it’s worth is obviously vital, as is knowing how to increase earnings before interest and tax (EBIT). Your current market value is a key component of a business valuation, however you are also assessed on how the key areas of your business are performing. You can use this information to implement strategies that enhance areas needing improvement, promote growth and in turn boost EBIT and business value so your business is at strength when you plan to sell. If you are looking to sell your business you should forward plan, by possibly two years, to allow yourself time to prepare for the sale.
- Investment Opportunities
When opportunities for investment, private equity injection or strategic partnerships arise, decisions need to be made quickly. A business owner who understands the true value of their business is able to take full advantage of these opportunities and make informed decisions. Factors that would need to be considered include business history, legal structure, financial information, industry information and a range of other factors specific to your business. Investment opportunities should be seamless and undisruptive to your customers.
- Business Expansion
Understanding the value of your business will assist with funding from lenders if required, strategic planning and industry comparisons.
- Planning For Retirement
Many business owners put their heart and soul (not to mention their life savings) into their business with a hope that one day it will provide them with a retirement nest egg. If you are basing your retirement on the eventual sale of your business, you need to be prepared. By understanding how much your business is worth now, you can then identify how much you need to generate from the sale of your business to be able to retire comfortably. Once you know what the gap is, you can put in place a strategy to increase your business value and ultimately achieve financial freedom.
- Exit Strategy In Place
Every exit plan should align with the owner’s business and personal goals. The most successful exits from business require considerable planning. Regardless of your chosen exit strategy (e.g IPO, MBO, merger/acquisition) you need to have accurate insight into the value of your share of the business.
- Prepared For The Unplanned
Personal loss, divorce and legal disputes can sometimes be difficult topics to discuss but it’s important to have planning and asset protection in place for the future. If something happened to you, would your family be able to keep running the business? If they had to get your estate in order, would they know the value of your business?
- Insuring Your Business
Having appropriate insurance for your business is critical and many require details of a valuation. Please speak to your insurer or broker in relation to the information they require.
After working through the business valuation process, we often receive feedback from BLG clients saying how much more understanding they’ve gained in their business operations. We can identify the key growth factors and help business owners implement some simple but effective strategies that focus on increasing business value.
For personalised advice based on your individual situation, please get in touch with BLG Business Advisers online or call (02) 4229 2211.