Understanding the True Value of Your Business
For Business Owners, the business itself is often your largest and most valuable asset. While you can check your retirement and bank account balances any day, the value of your business isn’t as clear or accessible. Conducting an annual business valuation will not only provide you with a clearer understanding of the estimated value of this large asset, it will also help determine what factors to focus on in the interest of accelerating the value of your business. A valuation highlights areas of risk, shows what improvements have been made to the business, and most importantly, helps ensure the business owner’s goals are being met. Even if a business owner is not planning on exiting their business anytime soon, a business valuation to identify key risks in their company is still a crucial step to take.
Without first identifying your baseline business value, you have a very limited understanding of what metrics need improving, the strength of your intangible capitals, or if your business is as valuable as you might think it is. "As a business grows or moves toward an eventual sale, its people, clients, and culture become key drivers of value. To maximize that value, each must be intentionally prioritized, measured, and strengthened," said Ward Keever, IV, President & CEO, CLU, ChFC, RHU, AEP, CFS, AIF, CKA, CEPA®.
Attractiveness and Readiness Assessments
Business owners are extremely tied to their businesses and can be too close to the situation to see the negatives. For example, some only see the positives in their business. To a business owner, complications are simply a part of the business and not an area for improvement that their customers need. This is where Business Readiness, Business Attractiveness and Personal Readiness scores come into play.
Business Attractiveness asks the question, “How attractive is your business in the eyes of a buyer?” A buyer could be a family member, another employee, or a third-party buyer. The Attractiveness Index has 25 questions in four categories. Each category provides a score that is averaged to come up with the overall Attractiveness Score. A score of 50% or lower indicates that your company is “discounted” and serves as a red flag for owners. A business with a score between 58%-72% is of above-average attractiveness, and over 72% is considered a best-in-class business.
Business and Owner Readiness asks the question, “How ready are you and the business to transition?” This index has over 120 questions in 22 personal, business, and financial categories. Again, the results from each category are averaged to get the overall score for the index. Those businesses that score above 72% are considered best-in-class.
Attractiveness and readiness are not the same things. Just because your business scored highly on the Attractiveness Index, does not mean you are personally ready to exit your business. Similarly, if you are personally ready to exit your business, it does not automatically mean your business is attractive to buyers.
What’s Next?
Assessing both the attractiveness of your business and your personal readiness for transition brings clarity and control to that outcome. Our team is able to provide education and guidance along the way to help you understand where your business stands and identify opportunities to enhance value.
We encourage you to take the next step in securing your financial future—contact us to explore how we can support your personal or business financial goals.
