98% of small business owners don’t know the worth of their business. You don’t plan for retirement a few months before you retire. So why wait until a major life event to plan the future of your business?
It is easy to feel overwhelmed by the unknown when planning for the future. You might not know how much your business is worth when you should sell, where to find the right buyer, fetch the best price, or even how much insurance to carry. This is where a business valuation comes in.
Knowing the value of your business is the cornerstone and first step in understanding the business’s past performance. An accurate business valuation determines “Where am I today?” and “How do I get to where I want tomorrow?”.
- 170,000+ small businesses permanently closed due to the Great Recession – trillions of dollars deteriorated from US equity markets.
- One of the most significant hazards for small businesses during bear markets is what’s known as the “Stock Market Effect.”
- As stocks decline, people feel less wealthy and don’t spend as much.
- Without a plan, a bear market may destroy hundreds of thousands of businesses and foster an economic environment of stagnation.
For 75% of business owners who plan to fund retirement with the sale of their business, a plan in place is vital. A plan to preserve capital, protect against suits, and promote growth. To have the funds necessary to survive or, better yet, thrive.
A solid plan and adequate preparation are necessary to have in place for every business. Cash is King.
- Small businesses need cash to grow and rely more heavily on bank loans for working capital.
- Roughly 16% of business owners have taken equity from their homes and used it as collateral to finance their business.
- After the business value is understood, plans can be put in place. Secure funds, prepare the business for capital acquisition, or save and build cash reserves for the future.
Money buys freedom and gives a business owner leverage when seeking a loan. Understanding the value is today and laying out a business plan builds value moving forward. Capital preservation is one of the most critical aspects of managing a business effectively.
- Efficiency and leverage are critical, getting processes as smooth as possible while maximizing each dollar spent.
- More cash can remain in hand by stressing the importance of cost-cutting and waste to the team. Encourage the team to bring ideas to the table around how the business can run more cost-effectively.
- Lean operations are vital to making it through a recessionary period. It can be the difference between a happy retirement and a boarded-up storefront.
Some of the most significant buying opportunities occur when everyone is running for the hills.
- Look for opportunities and undervalued investments to scoop up as markets decline. Opportunities like these don’t come around often and to seize them requires preparation and foresight.
- Periods of an economic downturn are often some of the most significant periods of merger and acquisition activity and truly distinguish the strong businesses from the weak. Planning and being able to take a position on a failing operation could pay dividends later on.
- The purpose of an acquisition is the execution of company strategy and to increase the strength of the core business.
Deterioration in the US equity markets over the next two years will become a headwind for business owners. Without a solid plan in place to account for decreased profits, fewer capital infusions, increased credit risk, and growth opportunities, it is unlikely the business will remain profitable and may even cease operations.
Preparing for the future is as much about identifying market trends and understanding your customer base as knowing where you’ve been. You hope that the business increases in value each year so that when it’s time to exit, your nest egg is secure. So then, what’s your company worth? A business valuation can help ensure you are on track to meet personal and professional goals.
