Do you deserve to be fired from your own business?
It’s incredible to me that business owners choose to work painstakingly in their businesses for 30 years to accumulate value — often times, at the expense of their health, their personal desires and even their own sanity – and then in the span of 18 months they lose most, if not all, of the business’s terminal value, by their own negligence.
Undervaluing your business is the worst fire-able offense!
If this type of a loss of value were to happen in the day-to-day operations of your business, you would never tolerate it.
Would you put up with an employee who showed up late to work, took more holiday time than he or she should have, caused you to lose customers or robbed from your business checking account?
No, he or she would be fired.
Would you tolerate a client who didn’t pay their bill?
No, you’d terminate the relationship.
Would you have done business with a vendor who overcharged you for supplies?
Then why do business owners, in the act of leaving their business, commit the most fire-able offense of them all: allowing the loss of significant value by neglecting the business valuation process?
The reason this happens.
The answer to the question of why value-destroying business valuations are allowed to occur is simple and complex.
The simple reason is that in the above-mentioned scenarios, the culprit is another party rather than yourself. It’s human nature to have a blind spot to the mistakes we ourselves make, and business owners are human.
The complex reason involves the way that business valuation services are sold to business owners. More often than not, the process is weak or nonexistent. Many financial advisors approach such a transaction as selling rather than planning. Life insurance is the “liquidity” solution at the end of the rainbow. The planning part of the process is nearly skipped over – you guessed it – because the commission-driven advisor doesn’t get paid for those hours.
All of this doesn’t take away from the fact that, as a business owner, you deserve to be fired from your own business for the loss of value you are causing by allowing this to happen. Before you commit a fire-able offense to your own business, stop and put a process in place that will allow you to realize the value of all you’ve worked so far to build.
The solution is understanding your business’s value.
Business valuation is not an exact science – it’s an estimate. A businesses value is what a buyer is willing to pay. You don’t have to get the valuation right down to the penny, but a process like the following is going to get you much closer to where you need to be. Understanding valuation drivers is important.
One of the first steps in business succession is knowing the dollar value your business holds. For some business owners, this can be a harsh dose of reality. What if the market value isn’t what they had in mind?
There are three outcomes to a business valuation as outline above: you can be above, at or below the value you need to retire. The bucket your valuation falls into will drastically change how you spend your final years at your business and the considerations to be had.
For those whose business value is above what they need to retire, you should be all set, right? You can sell your business at the level you want and walk away. However, who is going to buy your business and at what price? How important is keeping your legacy alive when you choose your buyer? What are you going to do with the excess value? What will you give it to?
For those whose business value is right around the amount they would like to retire, you have a permission slip to go into retirement. However, you will still need to choose how and when you want your involvement to end. Will you sell your business to a successor that is ready to take over? Will you be selling your business to the highest bidder? Will you let the company simply close after you leave? Have you taken inflation into consideration? What happens if things don’t go according to plan?
For those whose business value is below the amount they would like to retire, what level do you need to reach retirement comfortably and how are you planning to get there? What adjustments do you need to make? How long will you need to stay involved to make these corrections?
When it comes to retiring, you only want to complete this milestone once. Doing what you can to ensure you do it right is paramount. An advisor can help you face the tough questions and make logical decisions based on your individual retirement goals. Triumph Wealth Management, LLC has the experience to guide a business toward a successful transition no matter what bucket your business value falls into. We have the experience and knowledge for succession planning because serving those in transition has been our niche for over a decade. Your financial success is breathtakingly important so we want to be more than just your wealth management company. We want to be your guide in designing your ideal future.
For those who are looking to recognize the true value of your business, we invite you to join us on Thursday, September 26, 2019 for a workshop on succession planning. Please email email@example.com to reserve your spot.