Business owners have a lot of information at their fingertips. There are calculators and assessments available for just about every aspect of your business and personal situation. As a result, many business owners think they have an accurate idea about the value of their business. They may even think they have an idea of where the business value should be at their departure from the business. And retirement needs calculators are abundant, claiming they’ll give business owners a good idea about what they’ll need if or when they step away from their businesses. It can be difficult and somewhat complex to accurately measure the value of a company today, and then what it needs to be worth when the owner is ready to leave. Owners may be surprises to find “the gap” between the current value of their company and where the company value should be when they are ready to move on is much different than what they predict.
A Gap Analysis is the process that you can use to establish a few important benchmarks in your plans for the future, whether you intend to hold your business interest forever, transition ownership over time, or sell out completely in the next few years.
Step One - Quantify the money you will need to reach your personal financial goals.
Step Two - Determine the value your business can contribute toward meeting your financial targets today.
Step Three – Given your expectations for the future of your assets outside the business, try to predict what your business will need to be worth in the future in order for you to reach your financial goals.
Keep in mind that self-assessment and guesswork can only get you so far. You’ll ultimately want to work through this analysis with an experienced professional.
The size of the gap can help you set your priorities and timeline, highlighting your need for building business.
Once you get an understanding of the gap between current business value and where you need to be, you can start developing action steps for the future. Building business value can be an important factor in closing that gap. Many owners know they have to increase business value and want to grow their companies. But owners don’t always know how to do so. You can start by setting the scope of the value-building project.
Taking these steps to understand where your company currently stands, where you need to go, and what you need to reach your goals is a great way to effectively include your business in your larger plans for the future. Building business value might be the most important action a business owner can take whether they are ready to leave their business or not.
Jeremy D. Suarez, CExP™,CEPA®
TOMORO l Managing Partner
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 2111 Route 34 South, Wall, NJ 07719, (732) 528-4800. Securities products & services and advisory services offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Tomoro is not an affiliate or subsidiary of PAS or Guardian.
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