Understanding business value early is crucial
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Understanding business value early is crucial

Understanding business value early is crucial

Small business ownership is a cycle that is repeated over and over.  In the beginning, the business owner starts and builds the business. The business provides income until the owner is ready to leave the business. In the end, the owner leaves the business and realizes the value they have created. Unfortunately, the end of this cycle often involves significant disappointment.

When business owners are ready to leave their business and learn the business value is going to be much less than they expected they may have to put their plans on hold or cancel them. If they are forced to leave the business due to health or family situations, they may need to discount the business price significantly, or consider liquidating the business assets. These situations are not good for the business owner and leaves the business owner very few options.

If the business owner understands the business value far in advance (5+ years ahead is best) of their exit, they have an estimate of how much money they will receive when they sell the business. They have the opportunity to plan and prepare for their exit to maximize this value. They may be able to create an extremely valuable business which will fund their next adventure nicely. If the business is not extremely valuable, with the value knowledge early, the business owner can diversify, acquire more businesses, or invest in other areas to ensure they have funds available for their life after the business.

Either way the owner that knows the value early is better prepared for their eventual exit from their business.  Understanding the value of your business early gives you many options and the knowledge to avoid life changing consequences later.

If you want to learn more about this and other important topics for business owners follow Cross Northwest on LinkedIn, like us on FaceBook, visit our web site, or email us: [email protected]

Damon Pistulka is the managing partner of the Cross Northwest Seattle office.