What’s Your Business Worth If You Died 90 Days Ago?
As a business owner, ask yourself what your business would be worth today if you died 90 days ago. The answer for a lot of business owners is “not very much.”
The owner of most small and mid-sized companies is typically the driving force in the business – and is a major reason for the company’s success. In many respects, the owner is the business. When the owner goes away, so does the business.
The bad news is that 50% of small and mid-sized company sales and liquidations are triggered by unplanned events – including death, incapacity, divorce, economic downturns, and other life events. If your death was the unplanned event that triggered a sale of your business, and your answer to the question about what the company would be worth after you died was “not very much,” the outcome might be a liquidation instead of a sale.
A more relevant question might be what your business would be worth if you retired and sold the business. Many Baby Boomer business owners are finding it difficult to retire because their business isn’t worth much without them in the driver’s seat. When they realize they can’t afford to walk away from their business, retirement has to be put on hold.
Coaching Point:
Over-dependence on the owner negatively impacts what a buyer is willing to pay for a business – and is the reason why many companies do not sell.
Three things every business owner should do to increase the value of their business and protect their family and business against their planned or unplanned exit from their company:
Make the Business Less Dependent on You – This is against the nature of most business owners – but you need to start making your business less dependent on you. That means you don’t have to be the focal point for everything that happens in the business – and you need to start delegating more. Teach the business how to get along without you. And teach yourself that the business can be successful without you controlling everything that happens in the business.
Develop a Successor – This is tough for many business owners – but you need to loosen your grip on the reins and start developing someone who can replace you when the time is right. Step one is to identify someone who can grow into your replacement. Step two is to develop and groom them. From our experience, most business owners are not good at developing a successor, and they find all sorts of reasons for not doing it. Bottom line, the best way to make the business less dependent on you is to develop a successor!
Protect Your Business and Family – Starting today, you need to develop plans to protect your company and your family if something suddenly knocked you out of the picture. There needs to be a plan for operating the business without you – and a plan for mitigating the financial impact on your business and your family.
Moral of the Story
The moral to this story is that most small and mid-sized companies are heavily dependent on the owner – and the planned or unplanned loss of the owner can have a devastating effect on the business and the value of the business.
By Bruce Skaistis
Corporate Performance Group and Waypoint Private Capital have formed a strategic partnership to help business owners build, protect, and monetize enterprise value in their business. Enterprise value is the market value of a company based on an estimate of what a buyer would pay for the company. Learn More