The Importance of Knowing What Your Business is Worth
All business owners should be asking themselves “What is the true value of my business?” It is a vitally important question because the value of your business will have a significant impact on both personal and professional aspects of your current life and your future. Oftentimes, the business is the owners most valuable asset. Knowing the true value of this asset provides a realistic perspective from which to plan for the future direction of not only your business, but also the future income needs of you and your family. Once the value is known effective plans and strategies can be put into place for future growth, business continuation, succession planning, and retirement planning.
Critical Times for Business Valuations
According to a 2015 MassMutual Business Owner Study, the top three reasons why business owners want to know what their businesses are worth are to:
Have another measure of business health/success
Know if the business has value in the marketplace
Prepare the business for sale
There are other critical times in the lifecycle of a business when it may be appropriate to have an accurate business valuation. The following are important business valuation milestones:
Funding a Buy-Sell Agreement: If you are obligated to buy out your business partner, or his/her spouse, through a buy-sell agreement, you need to agree on a value that all parties are comfortable with ahead of time and have it documented in writing in the agreement.
Evaluating Retirement Income Needs: Your business is likely your largest asset and a key component of your retirement plan. A valuation can help you reconcile your future retirement income needs with the current value of your business to help identify any shortfall.
Estimating Potential Estate Tax Obligations: The Federal Estate Tax exemption has helped to make estate taxes less of an issue. For some, planning for a potential tax burden and the impact it could have on the next generation is critical for the long-term success of the business.
A Courageous Decision is a Good Decision
Choosing the path of business ownership is truly an honorable and courageous endeavor. A successful business begins with appropriate planning and building a strong financial foundation. Business planning is not something that is done overnight. Having an understating of the true value of your business is a smart first step toward helping you set your business on the road to a more financially secure future.
If you are interesting in learning more about business valuations, please join us at our next business planning workshop, Strategies to Help You Maximize and Protect the Value of Your Company. The event will take place at Empire Restaurant & Lounge in Boston, MA on June 1st at 5:30pm. Please RSVP here. Please note that space is limited.