A potential client has been dragging his feet on having a business valuation done. Most recently, he asked, “Is it too early to have my business valued?” A better question may be, is it too late?
This baby boomer wants to exit his business and retire in the next 2-5 years. He said, if the business isn’t worth much, he would probably hold on to it and transition management of the business to a group of employees over time. If the business is worth a lot, he would sell now and retire as soon as he had transitioned the business to the buyer. Inherent in that discussion is the fact that he really doesn’t know how much his business is worth.
As I pointed out in my blog post of February 26, 2014, “Why Should I Get My Business Valued”, for most business owners, their business in one of their biggest assets (often their biggest). Every month you know what your securities portfolio is worth. You can go to Zillow.com for an estimate of your home’s value. Similarly, you can go to Loop.net to get an idea of the value of your commercial real estate holdings. But where can you find the value of your biggest asset? The only ways are: 1) to market and sell your business or 2) to have your business valued by a qualified valuation expert.
My response to this business owner was:
“No, it is not too early. If you end up deciding to transition the business to your employees, it will take time. Doing it right can take 3-5 years or more. If you want to retire in 3-5 years, you already may be behind the game. And…if the business is worth enough for you to retire now, what are you waiting for?”
Most likely his business is worth somewhere between the two extremes that are occupying his mind. An accurate and well-documented business valuation will help him make better decisions with respect to managing the business and exiting in the right manner and in the appropriate time frame.
- Roy Martinez is a Certified Valuation Analyst (CVA) and business broker/M&A adviser. He can be reached at firstname.lastname@example.org or 707-778-2040.