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You might have just started your business, or maybe you have beaten the odds and have been doing this for years. Regardless of where you stand, no one can deny owning a business is a journey. And it’s a crazy journey at that. You basically start with nothing and, in time, wind up with a lot. That being said, every great journey at some point must come to an end. Unfortunately, most business owners don’t consider this to be an important part of their business plan.
One Thing Entrepreneurs Often Ignore
In fact, it usually is the one aspect of the business that is completely ignored. In the beginning, business owners will say, “I can deal with that later,” or “I’m too busy right now.” However, when something happens one day and they are no longer able to perform their duties, they will be forced to sell their interest. Many of us think that will never happen to us, until it does. So, what would you do you if the journey’s end happened to you, instead of you choosing your end? Are you prepared? Do you have a written plan to pass the baton and recoup on all that you have invested? If you were forced to sell, do you know the business value?
These are all valuable questions to ask. Some of these questions, however, can’t be answered until you have answered the question of how much your business is worth. Whether you realize it or not, the value of your business will have a big influence on your life both personally and professionally. Knowing what your business is worth will make you better equipped for decisions in the future.
Obtaining a business valuation, performed by a credentialed valuation expert, is a lot like having your home appraised. They will create estimates on the economic value of your interest in a business. The most common use for this information is to determine the selling price of a business, which will be critical to the development of the succession plan. The valuation is also used to determine the amount needed to fund a buy-sell agreement, or to assign values to individual assets held by the business. Once you have established the value of your business, you now have the ability to create real plans to stimulate the growth needed to achieve those big goals, set the course for how the business is going to continue, or even what the succession plan is.
Using Your Business to Fund Your Retirement
Another question in the discussion of this business journey is what your personal life looks like after the journey comes to an end. Are you relying on the business value to be a primary source of funding in your retirement? Then the business valuation would be essential information for you to have. Wouldn’t it be disastrous to find out at the time you want to retire that your business is worth less than you thought it was?
For many, retirement planning is a life-long process of accumulating savings and investments over time, sometimes decades. They put plans into place to draw down the money each year as their income during the retirement years. By relying on the proceeds from your business as an integral part of your plan for retirement, it would be critical that you know exactly what the business value is and what will be available to you in the future.
Gaining a firm grasp on this information early on allows you to adjust the other vehicles in your retirement plan that are outside your business. Additionally, if the economic conditions change for the worse and adversely affect the business value, you’ll be in a better position as you move toward the next chapter of your life.
Do You Know Your Business’ Worth?
Regardless of where you are in your business journey, it is recommended that you get your business succession plan in place. Or, if you have one written down already, be sure to review it often and ensure it is still on target with your goals. When was the last time you had your business valuation done? Are you like most entrepreneurs that have put this off? Often it is put off because they don’t really know how to proceed with the valuation process.
The answer is pretty simple, your team of professional advisors can help guide you in determining the best way to undertake the business valuation process. If you don’t have a team of financial advisors, it is recommended you put one together. They will provide guidance and insight on what your retirement picture looks like and what you can do to create the retirement you desire. They should also be able to work through your business valuation process and walk you through the steps of effective succession planning.
With all of this in mind there are three things I hope you take away from this article. First, it is really important to have a written business succession plan in place. Second, make sure to get a business valuation performed by a credentialed valuation expert. Third, have a strong professional advisor team in place to guide you in the process of your retirement planning. Following these three simple pointers will lay a good foundation to be prepared for whatever life throws at you and allows you to end your business journey on your own terms.
To learn more about business evaluation, connect with Lenny on MassMutual. Or if you have further questions, leave a comment down below.
This article originally published on GREY Journal.