It is common for company executives to undergo annual physical check-ups. They are also likely to examine their own investments at least once a year, if not more often. However, rather perplexingly, these same capable and responsible executives often fail to consider giving their company an annual “check-up,” unless required to do so by rule or regulations. One form of check-up you can give your business is a business valuation–to determine its value and alert you to important factors that may need to be addressed.
Recently, a leading CPA firm undertook a study that was quite revealing. In particular, this study concluded that a whopping 65% of business owners surveyed did not know the value of their company and 75% of surveyed business owners had their net worth tied up in their business. Phrased another way, 75% of business owners don’t know how much they are worth! Perhaps most striking of all was the fact that a full 85% of surveyed business owners had no exit strategy whatsoever.
Having Recurrent Valuations is a Must
If you own a business, you should know what it is worth at least on an annual basis. Situations, both personal as well as in the economy at large, can change very rapidly. The failure to have a valuation leaves you exposed if issues suddenly arise involving estate planning, divorce, or even partnership issues.
It is also vital to understand how your business compares to previous years; after all, its value should be increasing not decreasing. A valuation can also help you understand how your business compares to other businesses. Perhaps most importantly, an annual valuation can help you spot and fix problems.
“Buy, Sell or Get Out of the Way”
Former Chrysler CEO, Lee Iacocca, once stated, “Buy, sell, or get out of the way.” If you don’t know your business’ value, however, it is difficult to discern the decisions you need to make for its future. One decision, for example, is whether or not to sell.
You need to know your business’ value in order to take full advantage of opportunities as soon as they present themselves. You may feel that an acquisition isn’t the right move at the moment, but that doesn’t mean you shouldn’t be prepared. Having a current valuation means you’re ready to seize an opportunity when it arises!
You never know when a potential buyer may enter the picture. Imagine missing out on a tremendous opportunity because you didn’t have a valuation in place. Often hot offers and hot opportunities depend on speed. The time it takes to get a valuation could mean that the opportunity passes you by.
The importance of annual business valuations cannot be overemphasized. They provide vital information about your company (which helps you maximize its value), prepare you to address challenges in a timely manner, and prepare you for valuable opportunities that may come your way, allowing you to take advantage of every opportunity you may wish to.
Copyright: Business Brokerage Press, Inc.
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