For numerous business owners, even including those who aren’t necessarily looking to sell their company in the near future, one area that’s important to have a handle on is your exit planning strategy. Also sometimes referred to as succession planning in some cases, depending on the nature of the business and its ownership, exit planning may involve several different important areas — and one of the single most important here is business valuation.
At My Biz Value, we’re happy to assist clients in both these vital areas on a regular basis. Our business valuation programs offer simple, convenient features that allow you to gauge the value of your business at any time, including during vital exit planning conversations. In fact, we’re also involved with the Exit Planning Institute’s Utah chapter, ensuring that business owners are fully prepared for this process and how to navigate it. What role does a business valuation play in exit planning, and why is proper valuation so important here? Let’s take a look.
Exit Planning and Objectives
As we noted above, while exit planning is best-known for its uses among those who are actively looking to sell their business in the somewhat near future, this is far from the only time when exit planning is important. In reality, any business owner would be well-served to have at least a basic understanding of the process and what their options may be — even if they’re not looking to sell right now. After all, you never know what the future may hold, and it’s always best to be prepared.
For instance, some business owners plan to transfer the ownership of their business to a family member or trusted employee after they retire. Others may simply want to ensure that their business will be able to continue operating in the event of their untimely death. In any case, it’s important to know what your options are and how best to prepare for them — and business valuation is a key part of this process.
Why Knowing Business Value Informs Objectives
In many situations, properly laying out your long-term exit planning objectives is all but impossible without knowing the value of your business. For example, if you’re looking to sell your company in a few years, understanding its current value is vital in order to have an accurate idea of how much money you’ll be able to walk away with after the sale goes through.
On the other hand, if you’re more interested in passing your business down to a family member or key employee, you’ll still need to have at least a basic understanding of its value. This is especially true if you’re looking to establish a buy-sell agreement as part of your exit planning — after all, how can you set a price for something if you don’t know what it’s worth?
In either case, then, a business valuation is an important piece of the puzzle — and one that our team at My Biz Value is more than happy to help with. We offer a wide range of business valuation services, all designed to give you the information you need to make informed decisions about your company’s future.
Understanding Value Drivers
Another major way that business valuation plays a role in exit planning is by helping business owners understand what drives value within their company. Obviously, the value of any business is going to be determined by a variety of factors — but not all of these factors are created equal. In other words, some things will have a much bigger impact on your company’s value than others.
A business valuation helps you to understand which factors are most important in determining your company’s value. This, in turn, gives you a better idea of where to focus your efforts in order to maximize the value of your business. For example, if you’re looking to sell soon and want to get the best possible price for your company, you’ll want to focus on those factors that have the biggest impact on its value. Alternatively, if you’re more concerned with ensuring that your business will be able to continue operating in your absence, you may want to focus on different factors entirely.
Developing Contingency Plans
As we touched on above, another common reason for building an exit plan as a business owner, even if you’re not looking to sell your company any time soon, is to ensure that the business will be able to continue operating in the event of your untimely death or disability. This is where having a clear understanding of your business’s value comes in handy once again.
Specifically, if you’re looking to develop a contingency plan for your business, understanding its value is essential. After all, if something were to happen to you and you were unable to continue running the company, someone would need to step in and take over. In many cases, this will be a family member or trusted employee — but in others, it may be necessary to sell the business in order to ensure its continued operation.
In either case, it’s important to have a clear understanding of your business’s value before anything happens. That way, you can make sure that your contingency plan is as effective as possible and that your family or employees are taken care of in the event that something happens to you.
For more on business valuation and exit planning, or to learn about any of our business valuation services, speak to the team at My Biz Value today.