There’s value and then there’s worth

Transition Series

Succession planning and business ownership transfer

It’s the intention of many business owners to use the proceeds of the sale of their company to fund a comfortable retirement – such is the beauty of finally reaping what you have sown. If this applies to you, it’s of course in your best interest to sell for the best price possible. However, most business owners (by and large) tend to overvalue their own company because they are too connected to it emotionally. Overvaluing your company and asking for too much will deter buyers, draw out the sale, and may even delay your retirement. It’s paramount to have a realistic asking price. Therefore, you need to know what your company is actually worth in order to attract the right buyer and move smoothly through the purchase process. In order to do this, you need an objective valuation done by the professionals.

Determining the worth of a business is a complex task, to say the least. There are various ways to value a business, including cash flow-based methods and asset-based methods. While a professional valuation may be expensive, in most cases it is a very worthy investment as it puts a realistic number on what is most often your biggest asset. Additionally, it provides an opportunity to identify key growth drivers, or aspects of the business that may drag on the value. A valuation can be tailored to specific situations, so if needed, it can even measure the impact of specific initiatives, as well. With these results you can course correct your business operations accordingly to then improve the value even more going forward.

When it does come time to sell, creditors, potential buyers or other stakeholders may require such an assessment before moving forward with the transaction. Having this information on hand in this case may help speed the process of a sale!

A valuation is a worthwhile check up for any privately-owned business. It provides insights into areas that may need improving and helps you as an owner build a more accurate for-sale price – and a more clear timeline to retirement. 

Stay tuned for new posts in our succession planning series every Thursday. Missed a post? Read on here:

Post 1: Planning for success[ion]
Post 2: There's selling and then there's everything else...
Post 3: Keeping it all in the family ...or branching out from the family tree
Post 4: When 'What If' Becomes 'What Now?'
Post 5: Should I stay or should I go?
Post 6: Beware of the tax man
Post 7: Freezing value = saving long-term
Post 8: What it's worth now, and how
Post 9: There's value and then there's worth
Post 10: Visualize, then plan
Post 11: The key is transparency
Post 12: Keeping up with the paperwork
Post 13: Consider all options

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About Richter : Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.

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