Wishful thinking. Remember father telling you – nothing that is worth doing is easy. He was wise. He knew the truth because he went through the school of hard knocks. Life is not a walk in the park. The only thing that is easy is to lie down and do nothing.
So it is with figuring out what a business is worth. Business owners spend a lifetime building their companies. Focusing on what you do best takes a lot out of you. No time left for second order details. What do successful business owners do best? Build great companies that have tremendous value.
No, most business people do not confront the need to value their company on a daily basis. This comes in the context of a life changing event. Retirement. Partner buyout. An offer to buy the company and fulfill your life’s dreams. An unfortunate stress of a divorce.
What is the recipe for a disaster? Assuming that business valuation is ‘no rocket science’ and you can do it in between two phone calls. You can just hear your father’s voice, ‘nothing worth doing is easy’. Whatever the turmoil that’s causing you to look into business valuation, approach it with caution, set aside time to address this strategic need, and be ready to roll up the sleeves.
Establishing the value of a company may be the most important decision a business owner makes in a lifetime. The price of failure is just too high. Approach it in a flippant manner and the business sale tanks, or you leave thousands on the table. There is a reason nine out of ten private businesses never sell.
What should a business owner be prepared for? A thoughtful process of setting up an action plan to get the business to its peak market value. Consider this simple idea:
A business that is easy to transfer to a new owner because it is well managed and does not require daily participation of the outgoing owners is vastly more valuable than an operation entirely dependent on the current ownership’s unique skill set. Why? A turnkey business is a magnet for investors who look to take over an operation that will keep humming and putting money into their pockets without requiring an arduous training and exhausting daily participation.
As every business broker knows, business value is set by the market place. No matter what the current owners think their business is worth, the ready and willing business buyers are the ones who set a cap on any realizable business value.
Successful businesses that are easily taken over by incoming business owners are those that are well managed, compete in a protected market niche, have a strong customer following, and have a clear roadmap to maintain their competitive advantage.
Business value is not cast in concrete. If you don’t like the numbers today, develop an action plan to get the business to the desired target value. Recruit and train professional management. Document key business processes. Provide the employees with an incentive to excel and stay long term. Divest of business ventures or assets that drain the company’s resources.
Then re-measure your business worth – you may find what many a business owner has discovered – knowing where you want to go is half the battle.