Roughly 80-90% of your net worth is locked in your business. In order to maximize your value, you must set up a system to determine the value hidden in your business. According to Walking to Destiny, "the ability to unlock that value at some point in the future will make a significant difference to your lifestyle and, at exit, will fund your next act." It is difficult to plan out your next act without having a professional business valuation. Conducting an annual business valuation will help determine what factors to focus on in the interest of accelerating the value of your business.
After identifying your business's baseline value, you must protect that value by mitigating any risks associated with it. Risks are divided into three categories: personal, financial, and business. Snider writes in Walking to Destiny, "protecting value is the first step in building value." To best protect your value, you must consider the 5D's: Death, Disability, Divorce, Distress, and Disagreement. Even if you do not think you will be affected by one of the 5D's, without preparing for the worst, your value will be negatively impacted.
Once you have protected your existing value, your focus can expand to building value. There are two ways to build value: increase your cash flow (EBITDA) and improve your multiple. Your multiple is the number assigned by the private capital market to the value of your tangible and intangible assets and their associated risks. Intangible assets include Human, Structural, Customer, and Social capital. Improving your intangible capital is critical to building business value.
After building your business value, it is time to harvest the fruits of your labor. There are numerous paths your business exit can take. You should invest in an investment banker and business advisor to get the most value out of your exit. You might discover that after reviewing your options, you decide not to sell your business and instead transition the company to a son or daughter, sell the real estate and keep the company, or continue to build value.
You most likely manage value throughout the course of your business lifecycle, but the most important time to do so is while exiting your business. To achieve the most value, you must manage not only your business value but your personal and personal financial value as well.
Learn where you score in each segment of value maturity by completing the Value Maturity Index. Give yourself a score of six if you have fulfilled everything in a category and a score of one if you have done nothing at all in the segment. This one to six scale is referred to as "Common Sense Scoring." It eliminates the option to rate your business as "average" by removing a middle option. Draw a line connecting each segment and shade in the area. The non-shaded area represents your area for improvement. Every 90 days complete this simple index to highlight how your value has grown.
Are you operating at best-in-class? Learn how to maximize value for an exit on your terms.
What makes your business valuable? It is likely that 80% of your company's value lies within the four Intangible Capitals or 4Cs. These Intangible Capitals consist of Human, Social, Customer, and Structural Capital.
Many business owners wonder how much their business is worth and how they stack up against their competitors.
During the exit planning process, a consultant must balance an owner's business, personal, and financial needs.
Successful exit strategies follow two concurrent paths. The business improvements path and your personal and financial planning path.
What's your business worth? Whether you're buying, selling, merging or borrowing valuing your business is the first step.