What is Your Business Worth?
By Bruce Skaistis
I’ve been providing strategic, business, and M&A advisory support to business owners for more than 40 years. I’ve lost track of how many times I’ve had a conversation similar to this with a business owner:
Me: Do you know what your business is worth?
Business Owner: I think I have a pretty good feel for the value.
Me: Have you had an independent valuation?
Business Owner: No – but I’ve talked to some friends and they have told me they think my business is probably worth a lot.
Me: Friends mean well, but most friends really don’t know what your business is worth. Same for attorneys and CPAs who aren’t trained as valuation specialists.
Business Owner: I don’t plan to sell my business. Why do I need to know what my business is worth?
Me: I usually respond with some combination of these reasons why it is important for business owners to track the value of their company:
- On average, 75% or more of a business owner’s personal wealth is in their business. You probably know what your house is worth – you know what your stocks are worth – but you don’t know what your most significant asset is worth. Does that make sense?
- Every business will be sold or liquidated while the owner is alive or after the owner dies.
- Even if you don’t plan to sell your business, your company may suddenly be for sale because 50% of private company sales are triggered by unplanned events – including death, incapacity, and other life events – and unplanned events can significantly reduce the value of a business.
- Since most business owners have an unrealistic understanding of the value of their companies, business owners are frequently disappointed when they try to sell because their business is not worth as much as they thought it was worth.
- Company value is the most objective way to determine how well a company is performing. It is also the best way to identify and prioritize things that should be done to improve the performance of the company.
Bottom line, we recommend that business owners get an independent market valuation of their company every year, so they always know what their company is worth.
How Can I Find Out What My Business is Worth?
Independent valuations can be expensive, but we have a better option for business owners. As a strategic partner with Waypoint Private Capital, we help business owners quickly determine the value of their company – and it’s a free service we provide.
We go through a short questionnaire with a business owner in an in-person or Zoom/Teams meeting using a sophisticated online valuation tool. To calculate market value, the software uses sophisticated algorithms developed at MIT to assess 18 value drivers. The software then benchmarks the company against a database of over 15,000 closed transactions to develop a “most likely” estimate of what a buyer would pay to acquire the company.
At the end of the meeting, we give the business owner a report that outlines the estimated market value of their company – and estimates the potential “best-case” value for the company at current revenue and profit levels.
The “Gap” between the current market value and the potential value provides an easy to understand starting place for improving the company’s performance and increasing the company’s value.
There is no charge for this initial meeting or the baseline valuation.
You can contact me at BruceSkaistis@corporateperformancegroup.com if you would like to learn more about our baseline valuation.