There are several important reasons to know what your business is worth, according to Jack Priebe of Commonwealth Financial Group. The future of your business might depend on the valuation of whether you intend to sell your company to a group within, an external buyer, or to pass the company along to the next generation. Of no less importance is the future of the business owner, his family, and the “family” of employees. Priebe recommends taking the time to work with a professional to evaluate your company’s value so that you can fully understand the implications of an exit strategy and/or retirement plan.
The keyword here is the plan. Most company owners do not take the time to put everything in writing and sometimes issues arise if a sudden death, disability or loss of an essential employee occurs. Priebe covered three issues he often sees in his role as a business advisor: funding retirements, succession planning, and the sale of a business. Business valuations are an important step for each of those approaches. The pandemic has motivated several business owners to begin or complete their succession and estate planning.
Priebe laid out the “core pillars” of business planning:
- Keeping key employees loyal
- Knowing what the business is worth
- Protecting the business from the death of the owner or key employees
- Protecting the business from the disability of the owner or key employees
- Business succession at death, disability, or departure
- Transitioning ownership and/or finding a buyer at retirement
- Being fair and equitable on the distribution of the business owner’s estate
What Do You Include in a Valuation?
Priebe says that many business owners do not take into account what he calls the “Four Capitals”:
- Human Capital (Employees)
- Consumer Capital (Sales/income)
- Structural Capital (assets)
- Social Capital (brand/reputation)
Having a certified business valuation company or CPA document the valuation is preferable to owners handling it themselves. Owners usually underestimate or overestimate the value. Priebe also recommends doing valuations more than once every 10 years, especially if your business has grown or changed in some way.
Business valuation is a key component of a fair buy-sell agreement as well as succession planning, not to mention peace of mind for many owners.
Here is the link to Jack Priebe’s presentation.
Posted By: Cheryl Savit, SavvyWords for KitchenVisions, Audio Video Design & Kevin Cradock Builders