What is Your Business Worth & How To Plan for Future Growth

Why care what our business is worth, if we don’t plan to sell for a few years?

1.  Starting a business is about creating value for you, your family and your employees.
   1.  Value of jobs and a profit stream (salaries) for the owner.  May begin this way as a way to create a job for the founder.
   2. Once a business matures and stabilizes, it is important to do the things that create value.
2.  Creating value in a business is impacted by different factors all influenced by planning.
   1.  Creating a loyal customer base that becomes loyal to the products and service the company provides.
   2. Building a talented team of employees that are good at what they do and willing to train others around them
   3. Building a pattern of growth and profits that are the base for positive operations of increasing earnings in the future.
      1.  A big part of valuing a business is forecasting future earnings and capitalizing it by a multiplier that the market is willing to pay (3-5-8 time’s forecasted future earnings discounted back to the date of sale).
   4.  Protecting intellectual property that is unique to the company.  Could be product or process patents that protect some part of the company.
   5. Developing a management team that can grow and improve the company, even if the owner is not present.  Two strategies here:  (1) Transferable value only occurs if founder is not needed; (2) Founder can work on the business and transition out of working in the business.
3.  How to plan for increasing value?
   1.  From what your business is worth today.
   2.  Brokers will tell you 3-5 times earnings.
   3. Industry advisors may have benchmarks of what other companies have sold for.
   4. Business appraisers can give you informal or formal values that will be researched and more helpful.
      1. Designations include: CVA – Certified Valuation Analyst; ABV – Accredited in Business Valuation; ASA – American Society of Appraisers.
4.  Update that value every year.
   1.  See the progress you are making over time.
   2. Reinforces doing things that build value.
   3. Keeps in focus the ultimate purpose of a business building value.
5.  Plan your business to increase value
   1.  Annual business plan that addresses value drivers.
   2. Reminds management team of priorities.
   3. Gets group buy-in of goals of the business.
6.  Occasionally test your value – learn what others think
   1.  Business brokers
   2.  Strategies businesses
   3. Respond to inquiries

When it is time to sell your business or convert your business into retirement cash and income, you will be ready.