What’s My Business Worth?

September 21, 2021

Last week on our blog we shared the four things you should do if you get an offer to buy your business. Getting an estimate of the value of your business was one of those things.

This week, we are digging into how you find out what your business is worth.

Before we get into the “how”, let’s talk briefly about the “why”

Why should you put in the effort to get a formal valuation of your business, even if you aren’t thinking of selling? There are a few reasons:

  1. For most business owners, their business is their largest asset. You don’t want to guess at the value of your largest asset.
  2. It’s likely that the wealth you have tied up in your business is going to one day fund your retirement. How can you make retirement plans if you don’t know how much wealth you have?
  3. Even if you aren’t planning on selling, strategic decisions should always take into account the value of your business.

Ok so let’s talk about “how”

There is no single formula for valuing a business. There are several variables that can impact what your business is worth at any given point in time.

What’s the state of the economy? Your business will be worth more in good times when other businesses are looking to acquire.

What multiple has historically been used to value a business like yours? Multiples vary from industry to industry. A resource like Valuation Academy can help you understand what’s been happening in your industry.

Who are the interested buyers? If the potential buyer can realize synergies from acquiring your business, it’s going to be worth more.

Wondering how to sift through all of the variables? That’s what a business appraiser is for.

A business appraiser should be credentialed and experienced. Their job is to identify a price range that is reasonable depending on the variables at play when you decide to sell.

A Certified Business Appraiser (CBA) designation is thought to require the most rigorous training that an appraiser can achieve. There are other designations that require testing and hands-on experience as well. Learn more about business appraiser designations here.

The National Association of Certified Valuators and Analysts has an online directory that allows you to search for an appraiser based on industry knowledge, credentials, and location.

Like other professional fields, a good referral is an ideal approach to finding an expert that can help you. Business appraisers often work closely with financial advisors, accountants, attorneys, and insurance advisors as part of a larger team that supports a business owner’s exit strategy. Ask other professionals you work with for a referral.

There may be multiple steps in the process

You may be asked to clean up a few items as part of the valuation process. For example:

  • Financial statements – income, balance sheet, and profit and loss statements, both current and at least a few years of history should be clean and presentable.
  • Service contracts – who are your key vendors and customers? Potential buyers will need to review key contracts.
  • Key employees – same thing here. Buyers want to understand the compensation and agreements for key employees.
  • Operations procedures – how does your business run day-to-day? Documented procedures and processes that prove how your business runs are valuable to a potential buyer.

You get the idea – the more you can document what makes your business successful, the easier it will be to appraise what you’ve built.

Ready to know what your business is worth?

At Heritage Financial, many of our clients are business owners. And we’ve helped many owners better understand the value of their business so they can prepare for an eventual retirement, whether it’s 5 years or 20 years into the future. Over the years, we’ve built a network of professional advisors, including business appraisers, that are instrumental to wealth management and financial planning strategies for business owners.

Read about how we helped a recent business owner prepare for and execute the sale of his business and transition to retirement here.

If you are ready to know what your business is worth, our team of Wealth Managers can help.

With every potential client we go through an initial three-meeting process to make sure we understand your needs and that our expertise is a good fit. These meetings happen before we formally agree to work together. If you are ready to get more clarity on your business and how it fits into your overall financial plan, contact us.

Kristin Castner, CFA

Kristin Castner, CFA

At Heritage Kristin is responsible for overall marketing strategy, with a focus on communicating the firm's message to clients and prospects and creating outreach programs to engage clients, partners and prospective clients.

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