As the owner of a small or closely-held business you likely consider your enterprise to be your life’s work. It is an area you have poured tremendous time, energy, and money into to build an important portion of the legacy you will leave behind. Unfortunately, it can be extremely difficult to determine the true value of what you have created because there is often no public market for your unique enterprise; this lack of information can leave you vulnerable and uncertain as you plan for the future.\
For example, suppose you are like many owners and a significant portion of your retirement plan is dependent on the sale of your business. If you never obtain an understanding of the value of your enterprise, you may be in for a nasty shock when the time for retirement comes: a funding shortfall that negatively impacts your standard of living and causes you to struggle in your twilight years.
Even if you want to transition your business instead of selling, a business valuation engagement can still be an important part of your strategy. Knowing the accurate value of the business helps you plan for how to distribute its responsibilities and assets and helps to create realistic expectations from the future owners. This information also allows the next generation to plan, both for how to raise the necessary funds to purchase their ownership stake and to evaluate their own retirement.
An understanding of the true value of your business is crucial for a variety of reasons, including planning for retirement and ownership transition. For many small and closely-held businesses with no public market to compare themselves to, a valuation report prepared by a knowledgeable professional is the best way to gain this understanding. Through a variety of approaches, consideration of industry factors, and examination of historical and projected financial performance, the valuation professional establishes a value for your business which you can use to evaluate offers to buy the business, determine gifting values and estate considerations, and set up vital buy-sell agreements between other existing or future owners of the business.
If you believe that a business valuation may be beneficial to your business strategy, please contact Scott Hoyles, CPA/ABV/CGMA, MBT at 651-483-4521.