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What Percentage of Your Net Worth is Tied-Up in Your Business?
Wed, Mar 10th, 2010
Business owners typically have 65% to 95% of their total net worth tied to their business. Your business may have an outstanding line of credit or other significant debt, with corporate liabilities personally guaranteed.
Consider the following:
- The only way to measure the performance of any investment is to know what it is worth. Whether considering an imminent or future exit strategy, a professional valuation provides the knowledge base to analyze proper timing. Perhaps your financial goals can be attained sooner than contemplated. If an exit is not on the immediate horizon, the valuation will be a tool to determine where you are and what action needs to be implemented to accomplish your ultimate goal. An annual review and update of the valuation keeps management focused on performance and building value. A statement of fair market value is the ultimate barometer of performance.
- Developing a relationship with a Professional Business Intermediary well in advance of a sale maximizes the probability of a high value, premium yield and advantageous structure when the timing is appropriate. Proper planning will help to identify key value enhancement opportunities such as minimizing owner dependency, customer concentration issues, vendor dependency matters, infrastructure deficiencies, etc. Proactively addressing some of these areas dramatically impacts value and marketability.
- A Professional Business Intermediary will advise you of alternative diversification strategies for your largest asset… your business. Selling or owning your business does not have to be an all or nothing decision. Some transactions can be structured as a recapitalization. This involves the current owner realizing significant cash to help secure the future, while maintaining meaningful minority ownership and operational control. The acquirer will often contribute additional resources to fuel growth, such as capital for equipment, accretive acquisitions, new marketing programs and added internal support. This allows the owner to continue the functions where his or her skill sets are of greatest value, while shedding many of the job functions that negatively impact quality of life. In addition to diversifying net worth and spreading risk, retaining equity provides an opportunity for a second bite at the apple, whereby the retained portion can be sold in several years at a premium valuation.
