How much is your business worth? You likely know the approximate value of your home, your car, and your retirement account, but like many closely held business owners, the value of your largest asset – your business – eludes you.
As a closely held business owner, you don’t have the luxury of looking up your business’ value on one of the public exchanges. So, how are you supposed to know what your business is worth? Well, let’s first discuss why knowing this matters in the first place.
Why Business Valuation Matters
The foundation of many sound business strategies – as well as many aspects of personal planning – is built upon an accurate estimate of the value of your business. An incorrect estimate of your business’ value will lead to less than optimal business and personal planning. The effects of such misjudgment will be felt most severely at your retirement because we know that most business owners rely upon the sale of their business for retirement income.
A Financially Secure, “Full-Time” Retirement
If you plan on retiring, it’s important to understand how much money you can realistically expect to get for your business if you sell or liquidate it. This will inform appropriate contributions to qualified and non-qualified retirement plans and help you feel confident that your income stream in retirement will support your desired lifestyle. Otherwise, your retirement may be delayed or you may not enjoy the kind of retirement that you envisioned.
Next Steps to Consider
Get an appraisal done on your business by a qualified valuation expert. Once you know the value of your business, there are many options to consider in order to insure it in the short-term and long-term. In Part 2 of this series, we’ll explore the importance of buy-sell planning for disability and death.