Business owners deserve to get full value for their businesses when they decide to retire. But who determines what “full value” is, and how do you create it? Let’s look at three strategies you can implement to pursue and build your business’ value.
1. Get a Proper Valuation
For many business owners, the value of their businesses goes well beyond a dollar amount. There’s an emotional investment that can sometimes cause business owners to overvalue their businesses.
In many cases, business owners may not realize that they’ve overvalued their businesses until they’re ready to leave them. That gives them little to no time to build the value they need to exit with financial independence.
Obtaining a proper, professional evaluation for your business can help you avoid this common pitfall.
There are several different tiers of business valuations, and you may not need the most expensive one at the outset. The key is to avoid “back of the napkin” guesses at what your business is worth.
A proper, professional valuation can give you a baseline that helps you determine the next best steps for building business value.
2. Begin Installing Next-Level Management
Once you know where you are, it’s easier to determine where you need to go. Perhaps the most important aspect of growing business value is installing a next-level management team.
If your business only has value while you are running it, then you can never truly leave it on your terms. Additionally, if potential buyers believe that the business can only succeed while you’re in it, they’re less likely to pay you what you deserve to leave the business.
Many successful business owners discover that installing next-level managers gives them more freedom to determine what a successful future looks like for them.
Your next-level management team is what stays behind when you decide you’re ready to leave your business. They improve processes and allow the business to run successfully without you. Their ability to keep your business thriving without you is often a big determining factor in building your business’s value.
3. Diversify Your Customer Base
Buyers are typically more likely to pay full value for a business that has a diversified customer base for several reasons.
A diverse customer base can help insulate your business from unexpected downturns. Additionally, having a diverse customer base usually means that losing one customer won’t throw operations and projections into chaos.
Another attractive part of a diverse customer base to buyers is that they don’t necessarily need to build a book of business from the ground up. Turnkey operations are generally more valuable to buyers, which can position you to get paid what you deserve for all your hard work.
Fortunately, your next-level management team can help you diversify your customer base if your current customer base is homogeneous. Their skills and networks can open new avenues for your business to serve.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional. Please feel free to contact us at your convenience.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.