Why Should I get My Business Valued?

I received a call the other day from a friend who owns a publishing company. I was telling him about the types of valuation projects I was working on, and he asked, “I’m not in the middle of selling my business or transferring it to my children; why would I want to have my business valued? Besides, I know the rules of thumb for my industry.” The answer I gave him was essentially the following.

First of all, I said, most owners have heard several rules of thumb, but those rules of thumb are usually superficial, ambiguous, full of exceptions or just plain wrong.

Like most owners, my friend didn’t know if the rules indicated a value of equity, total invested capital, only certain assets, or something else.  As in this case, there are often several rules of thumb floating around—and they can’t all be right! Few business owners are confident that they understand the value of their business. And the price expectation of those who are confident is possibly too low…more often too high. In either case, it makes sense to get those expectations right, right?

Second, I said, the stakes are too high not to know the value of your business.

For most owners of small to medium-sized businesses like my friend’s, their business represents a substantial part of their net worth. Furthermore, proceeds from a business sale are often the planned source of some or all of their retirement funds. What if your expected selling price isn’t realistic or achievable? Conversely, what if you’ve already met your target value, would you sell now? You receive a statement every month from your stock brokerage telling you the value of your securities investments, right? Why wouldn’t you want to know the true value of your business at least every year or two?

Third, I told him, wouldn’t you like to improve the value of your business?

Wouldn’t it be wonderful to have a seasoned independent expert pinpoint the drivers and detractors of value in your business today? We encourage company owners who are planning to exit in the next five years to get a confidential assessment done now. This provides the business owner with a probable selling price (a number or range) and a solid basis for making sound decisions about exit strategy and improving the value of the business. Our assessments actually go well beyond value and look at marketability, finance-ability, transferrability, due diligence survivability, and other factors that are important to a successful exit. We often spot issues that are legal, tax and financial in nature and direct our clients to competent advisers in those areas. Then, after owners make adjustments in their business, we can measure progress periodically (every year or two) by updating the assessment, and give additional recommendations for reaching the next level when appropriate.

Sooner or later, everyone exits their business. The question is, do you want to leave it to chance? Or do you want to maximize value, preserve wealth, minimize risk, and exit on your terms?