Today, I’m talking about something that is near and dear to the retirement planning process and that is how to value your small business. There was a study done by IBIS World that said only 2% of business owners know the value of their business.
The good planners among us spend decades planning for our retirement, so it’s crazy to think that as a business owner, you wouldn’t do the same thing when planning to exit your business.
But the reality is that many business owners wait until they’re ready to retire before they take the necessary steps to exit their business…and by then, it can be too late. Too late to get what their business is worth. Too late to find a viable buyer. Too late to keep the business going past their retirement.
A foundational step in the business exit planning process is knowing what your business is worth. If you don’t know the value of your business, this 2 part video series is going to fast-track your understanding of your business value, and show you how you can ballpark the value of your business in 5 minutes with just 8 pieces of information that you probably already have at your fingertips.
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Full Video Transcript
I had a conversation with an acquaintance of mine just a couple weeks ago and she was telling me about the family business and this family business has been in the family for three generations. This owner that recently retired was the third generation owner in this business. As we were talking about what transpired, basically, what happened in the last two years, the owner decided that it was time to retire. The owner didn’t know what the business value was worth, didn’t have any succession plan in place. Didn’t know who the business would be sold to and she became pretty frustrated because she didn’t know what that next step was.
Because she waited until the very, very end, until she was pretty much done anyways, wanted to retire, wanted to move on, she didn’t give herself enough time to find that right buyer and have the business continued. What was so sad about it to me was that this had been in the family for three generations and the value, when this third generation retired, was zero. $0. Three generations of work and blood and sweat and tears into this business and there was nothing to show for it at the end. They literally just closed the doors, closed the books and called it quits.
Hi there, my name’s Ashley Micciche. I’m the CEO of True North Retirement Advisors where we specialize in retirement planning for business owners. Today, I’m talking about something that is near and dear to the retirement planning process and that is figuring out the value for your business. There was a study done by IBS World that said only 2%, 2% of business owners know the value of their business. It’s probably, if there’s 100 people who watch this video, two of you know your business value and one of you is probably retiring next week, which is the only reason why you know the value of your business.
It was actually kind of crazy to think about. We start planning for our retirement. A lot of us who are good planners, will start planning for retirement in our early 20s. You could spend decades planning for your retirement but when you’re a business owner and you don’t know the value of your business, that’s probably your largest asset and so, if you don’t know the value of your business, you’re really creating this whole question mark or a cloud over that particular asset and that particular aspect of your net worth, which is a big, big problem.
This is a two part video. Next video we’re going to get into the nitty gritty. Im going to do a sample valuation where I’m going to walk you through what those eight pieces of information are, which by the way, you can probably get, you already have readily available. With your tax return from last year and some pretty basic bookkeeping numbers. Business valuations, they don’t have to take months and pouring over all these documents and all this time and all this money to get a valuation.
Let’s talk about some high level, really, really important key reasons, at least from a retirement planning perspective and maximizing the value of your business from that perspective, reasons why you would not to do a valuation and not put it off any longer. Reason number one is of course the retirement planning aspect. Your business is most likely your largest asset. If a client comes into our office and we’re doing all of this deep dive into the investment strategy and the asset allocation and making sure that the stock, bonds, cash mix, all of that is right where it should be and then we have a huge hole over here that represents the largest asset where we’re just like, “Eh, we’ll figure it out later. Let’s just move on.”
That’s what a lot of planning involves when you don’t know the value of that asset. Reason number two would be succession planning and this is related to the retirement planning piece because again, once you know the value of your business, then you can make a plan. Not just with your assets but how you want to transition and who that buyer or buyers are. The last reason is to provide protection for your family.
I had a really sad story a number of years ago. A client who, I was a 401(k) consultant for their 401(k) plan and very suddenly, the owner of the business had a hard attack and he died. None of his other family members were involved in the business. He kind of did everything. He maybe had 30 or 40 employees and so when that happened, he didn’t do any planning whatsoever. There was no insurance, there was nothing and they kind of hobbled along for two or three years before they finally sold, selled, sold the business to a competitor of their. They were a manufacturing business so they sold it to a competitor of theirs on the East coast.
The incredibly sad thing that happened is that they sold it at a pretty significant discount. The owner’s wife got quite a bit less than what they were hoping for. Guess what, they didn’t need the jobs and the office and all these other functions that were duplicate and this other company. A lo of the workers here in Oregon, who were working at that company were laid off and had to go find new careers. I remember a couple of these people had worked there for decades. It was a really sad situation because that business owner didn’t take the necessary steps to plan for a catastrophe and to protect his family to ensure that there was continuity in the business.
It led to disaster and the business hobbled along for a few years. A competitor swooped in and got the business for an incredibly low price because they were desperate to sell at the time and that was that. This is really, really important to us. We want our business owner, clients, all of them to understand the value of your business so that you can then take the necessary steps to plan for your retirement, plan for your succession in the continuity of your business and protect your family.
You wouldn’t start planning for your retirement six months or a year before you retire so don’t put off the planning of your business and the valuation of your business exit six months or a year before you decide to retire. Stay tuned. In two weeks I’m going to be posting part two where we’re going to walk through the steps and I’m going to show you in five minutes, how you can ballpark value your business to a pretty good, good number. If you want to jump ahead and you’re like that A+ student who reads the book before everybody else does, be my guest. You can go ahead and start your business valuation today and I will include a link below.
Are you watching? I’m not sure. If you comment below, like, subscribe to our channel, I will know that another human being has seen this video. Your comments, I would love comments. Let me know what you liked, what you didn’t like, what information would be relevant for you in valuating your business and what can I talk about that might be helpful for you. Otherwise, it’s just coming straight out of here and there’s not much going on here. If you could please like, subscribe and comment on this video, I would much, much love to you for doing that. Thanks again for watching and I’ll see you next time for part two.
Where we specialize in business and exit … no, that’s not it. Okay. Give that thumbs up for … okay, let’s start over, that was bad.
