True or false: A business owner only needs to understand the value of his or her business when contemplating a sale or when a transaction is imminent.
This idea was not true before the events of 2020, and it is even less true due to the COVID-19 pandemic and its rippling effects through the economy.
Business value can be impactful for a variety of reasons, such as:
- Management planning (growth, strategy, recovery): What if I need to bring on a new partner? What if I need to raise capital to fund growth or recovery efforts? Am I making the right decisions (i.e. return on investment)? Are there acquisition opportunities (and, potentially, depressed values) in the market that will allow my company to grow?
- Succession planning: How and when am I ready to transition both responsibilities and ownership? Have I identified a successor (family member or other party, internal or external), and have they been made aware of ranges of value? Do I have a clear and current buy-sell agreement to facilitate shareholder transactions?
- Estate and gift planning: Is now a good time to accelerate gifting while business values are likely depressed? How might tax strategies change in an election year?
- Exit planning: Maybe I do want to exit my business – how has the current pandemic impacted pricing and timing? Should I delay the sale process due to a depressed value? Conversely, has my business value been positively impacted and is accelerating a sale now an option?
- Conflict resolution: Unfortunately, disputes are inevitable – do current stakeholders have an understanding on value in the event a dispute arises? Do I have a current buy-sell agreement in place? This understanding can save time and money during already uncomfortable times.
- Other valuation scenarios: Are there key employees I would like to recruit, retain, and/or incentivize with equity in the business? Am I pursuing certain loans or insurance policies which require a business valuation?
Understanding business value can be challenging in a normal environment. Add to that the current uncertainty caused by the pandemic, and it is even more important for business owners to understand the valuation process.
Ben Vance and AJ Lowring covered this topic during a free webinar, “Valuation from an Owner’s Perspective.” Click the link below to get a better understanding of the business valuation process and why you may need to know the value of your business.
Access the Webinar Recording