We’re engaged by folks to perform valuations for a wide variety of reasons (litigation, death and taxes – you name it). But some of the smartest and most successful business owners engage us simply to understand the value of their business now. Why? Because there are they are attuned to these 5 things that ultimately increase net worth and smooth the path to a successful retirement:
One: Understanding value establishes the playing field.
Survey after survey shows that most business owners expect (need) the sale of their company to fund their retirement. How are you going to fund yours? And what standard of living will you maintain in retirement? Understanding value now – not a vague hand wave of understanding, but really getting to the actual number – sets the ground rules for running and growing your business.
Stress Test Your Retirement.
We’re all leaving our company someday- the only question is whether it’s on our own terms. Once you understand business value, it’s time to drill down on retirement needs, costs, and plans. Beach house in Miami? Country Club in Charleston? Let’s see if that’s an option. Running the numbers on your retirement plan requires an understanding of value. The best time to start to stress test your retirement plan is not after you retire….
Accelerate Corporate Value.
One refrain we often hear from business owners disappointed in their valuation is that they will “just wait until value improves.” In my experience value does not just improve – especially if revenues have been trending flat over the past few years. Valuation is on one level an exercise in evaluating the risk profile of a company. The outcome? A roadmap of factors that are impeding value, and a roadmap to start accelerating value growth.
Hold Management Accountable.
What is the fundamental objective of executive management? Return value to shareholders, right? Whether you are both shareholder and executive management is immaterial – the ultimate measuring stick for executive performance is corporate value. As we all know, if you have to measure what matters in order to achieve results.
Which Brings Us to… Incentivize Employees.
One of the most critical aspects of exiting a company is the concept of conveyable value. How will a buyer or new owner receive the full benefit of what they pay for? A business that is fully tied to a single owner is hard to sell and results in a discount to value. To convey value, you need a core staff that not only is high performing, but also wants to stay post closing. Valuation is at the center of discussions as you start thinking about how to “golden handcuff” key employees.
Working through a valuation process is lays the ground work to accelerate value and getting your business “Exit Ready.” Note the term. The goal here isn’t to exit now. The goal is to build a company with increasing enterprise value, that is stable, de-risked, and ready to support your retirement…. At the time of your choosing.