Every business owner starts their business with the core idea that they're building wealth. In order to truly build wealth, business owners need to look beyond the concept of “income”. If income is what you seek, then often you may be better served in the employ of a company. To truly become an entrepreneur who has built value in a business, you need to understand the foundations of what makes a business valuable. To do that, this week, I bring you back with me in our masterclass series on building value in your business with Louise Motuzas, Co-founder of Thrive Business consulting, an accredited exit planner.
In today’s column, I want to focus on some of the reasons you may need to know your business valuation (or what your business is worth).
1. If you are planning to grow
A business valuation delivers a scientifically calculated business price that’s the perfect benchmark for comparing annual growth.
2. If you are selling your business
Knowing the true value of your business and how to increase earnings before interest and tax is crucial if you’re planning to sell. A business valuation not only provides current market value but also an assessment of your business’ performance in multiple areas.
3. If you are attracting investment
When opportunities for investment, private equity injection, or strategic partnerships arise, decisions need to be made quickly. A business owner who understands the true value of their business can take full advantage of these opportunities.
4. If you are planning for expansion
For business owners with plans for expansion, an up-to-date business valuation report is a critical tool. It provides an accurate industry benchmark, and can make it easier to obtain funding from lenders and other financial organizations.
5. If you are approaching retirement
Many business owners put their heart and soul into their business, with the hope that it will one day provide them with a retirement nest egg. If you’re basing your retirement on the eventual sale of your business, you need to be prepared. A business valuation will give you an in-depth understanding of how much your business is worth now and what areas may need improvement.
6. If you are implementing a medium or long-term exit strategy
Every exit plan should align with the owner’s business and personal goals. The most successful exits from business take considerable planning. Annual business valuations create a ‘starting point’ for the longer-term exit planning process. No matter what exit strategy you choose, you need an accurate insight into the value of your share of your business.
Business valuations should be conducted regularly as business value can fluctuate depending on market conditions, competition, and financial performance.
Why more business owners choose to sell to third parties post-pandemic
While there are many reasons why business owners and founders sell their businesses, and these are based on their individual lifestyle and financial situations, Louise offers some insight on updated selling psychology in the post-pandemic market. “There was a study of business owners that found that while many had initially considered transitioning their business to their family members, they decided after the COVID crisis that they didn't want their family members to go through that stress and they would prefer to sell it to a third party” , says Louise.
The importance of customers in building company value
A program designed to build value in your business has effects far beyond a number. It helps foster an environment of positive emotional connection between you and your customer. It can help you to solve problems, build trust, and help customers really fall in love with you, thereby leading to wholehearted referrals. Louise says, “The more referrals your business has, the more likely an existing client or customer of your business is willing to suggest your products and services to somebody else. So customer satisfaction is high, high up there on the list of value for your company.”
If you enjoy the audio medium, you’ll find a lot more in the podcast episode with Louise here. Have a listen!
If you are looking to make a cash rich exit from your business in the next 5-10 years, please continue to make time for this series. We have 8 more columns coming up over the next 2 months. This Value builder masterclass series is sponsored by “Elevated Conversations” with me, Colleen O'Connell Campbell, a roundtable mastermind for co-founders and business owners who want a cash rich exit in the next five to 10 years.
An invitation to an Ottawa community
If you’re in Ottawa, you may be interested to hear that I'm reintroducing “Elevated Conversations” which originated in 2018 where I brought together smart investors and business owners to talk about interesting topics in technology and finance that were disrupting our world. With COVID and the end of dinner parties, we moved to virtual roundtables and now I’m bringing back masterminds in person.
The event is on October 26, 2022, and is by invitation only.
Let me know via LinkedIn or email if you’re interested, and I’ll send you more information.