What’s your number? A Business Value Conversation

In the April HTGWAY, I talked about two legacies that we’ll leave as business owners – a personal legacy and a business legacy.  Both are critical and obviously related.  But let’s focus on the reality of how most of us view our business in regard to provide a legacy – it is a major (if not the major) source of funding four our retirement and future.  It’s that simple for most, if we miss in creating enough value in our company we will fall short in having enough dollars to fund our lifestyle in retirement the way we wish it to be.

In order to be sure you generate enough for the future, you need to answer some very important questions.  If there are multiple partners or principals in the business, obviously the answers have to include everyone.

  1. How much is the business worth today?
  2. When (years from now) would you like to sell and stop being an owner in this business?
  3. What is the reasonable expectation of what the business will be worth when you want to exit?
  4. What steps do you need to take to grow it each year by that amount to fill that gap?
  5. How much money do you need from the sale for financial planning or retirement?
  6. Will the sales proceeds be sufficient to support your retirement or do you need to downsize?
  7. What gap exists between your business contribution toward your retirement and what you really need to be happy?

These are some questions that help define the future. Lots of people have little to no idea what their company is really worth. Almost always they believe it is worth far more than it truly is.

Of course the value of a company (or anything for that matter) is what someone is willing to pay for it. Formulas can help put the number in a ballpark, but until there is an offer on the table and money in the bank it is mere theory.

The big word that comes from these questions is GAP.  In most cases, one does exist and often in two places.  You need to recognize the gap and create a plan for how you will address it.

Hope is not a strategy.

It takes hard work and a disciplined plan to be able to strategically impact that gap.  It also takes time, so the sooner you begin making the adjustments the more likely you are to achieve your end goals.

The key is to know what the number is that you would sell your business for, which hopefully is closely related to what you need for your future.

Your business should always be for sale, for the right price.

That means you have to run it like you might sell it any day, which makes for good discipline and decision making.

But we need to have a number defined. How much would it take before you were willing to let the company go? If we wait until someone begins talking with us, it becomes too emotional. If we do the work ahead and have the number defined, it makes it a simple decision to execute.

Do you know your gap(s)?  If not, now is the time to discover and define any that exist.  And if there are gaps, what’s your plan to close them.

It’ll be worth the effort when you’re relaxing on the beach someday!

HTG Peer Groups exists to walk with leaders in life and business as they achieve their desired growth and legacy.  If you have gaps between your actual business value and what you need to retire, let HTG help.  Reach out to Dennis O’Connell to discuss how an HTG Coach or Consultant can help you close those gaps.

2018-05-07T16:18:09+00:00 May 19th, 2016|Peer Power Blog|0 Comments

About the Author:

Arlin Sorensen serves as the CEO and Founder of the Heartland Companies which includes HTG Peer Groups. When he is not traveling to speak and consult, Arlin is home on his farm in Iowa with his wife Nancy. He is a proud “Pop” to four precocious grandchildren who serve as daily reminders of why he is intentionally living to leave a strong legacy of faith and integrity. He loves making a difference in the lives and companies of small to mid-market business owners.

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