In this blog post for TFS Advisors, we want to dig into how business owners can work with a financial planner to create holistic strategies that support their lives, businesses, and a seamless retirement transition.
Financial Planners are often good sources for the resources and relationships needed to transition a business. You may not have retired before, especially if it involves selling your only business, but we have been through the process many times, so we can help!
As part of our blog series for business owners, we interviewed Chuck Laverty with Buckingham Group. Chuck assists business owners in valuing their businesses and making strategic plans to increase the value of their business before sale or retirement.
Note: As a member of Buckingham Group, we are able to offer this service to our clients who are business owners, as well.
What Is A Business Valuation?
When Chuck with Buckingham Group works with business owners to valuing their business, he’s looking to determine what the business is worth if it were to sell right now. The valuation can work in several different ways, and depends on:
- The industry.
- What services or products are being offered.
- What the ongoing book of business looks like.
- What client retention or return buyers a business has.
- What assets and expenses the business has.
Often, a multiplier can be used to determine the business’s base value, but coming to an accurate number requires a deeper dive.
Why Is This Important?
Business valuations are important for any business owner, but especially as a business owner nears retirement. Chuck partners with business owners who are interested in transitioning out of their business by selling it. In close to 90% of the businesses that Chuck and his team are valuing, the business is the individual’s biggest asset. In other words, it’s critical to get the most amount possible from the sale of the business to support their retirement lifestyle.
Unfortunately, many business owners misvalue their business. Too often, founders have an emotional component that comes into play when they estimate how much their business is worth for retirement planning purposes. They may think that, because of all the hard work they’ve put in, their business is worth $5 million when in reality it’s worth $1.5 million.
Add in negotiations, and they may only get $1 million from a buyer. If the business owner hasn’t taken time to plan in advance to increase the value of their business and shop around for the right buyer, this can create an insurmountable gap between the finances they need to retire and the finances that are available upon the sale of their business.
What If You Don’t Want to Sell Your Business?
Even if you don’t want to sell your business, getting a valuation can be incredibly beneficial. You may want to understand the value of your business for future financial planning reasons. Alternatively, you may have a bank that wants your business’s value to check to see if you’re properly insured. You may also need the value of your business prior to gifting it to someone else (your successor) for gift tax purposes.
What If Your Business Is Worth Less Than You Thought?
This happens all the time! The good news is that if you’ve allowed for a few years prior to selling your business, you’ve allowed yourself some wiggle room time to make necessary changes and sell for closer to what you’d need to retire with confidence.
Chuck’s team at Buckingham Group helps to value your business and provides an in-depth financial and operations analysis to understand what changes you need to make at a deeper level in order to increase your business’s value. This could look like:
- Increasing profitability.
- Reducing operating costs, or meeting industry-standard benchmarks.
- Looking at whether or not the business relies solely on the owner (which would be problematic if the owner retires!).
- Determining whether or not a business owner has a proactive business plan in place.
If getting your business valued is on your to-do list as part of the holistic retirement planning process, Chuck and the team at Buckingham Group can help in partnership with TFS Advisors. Reach out to us today to learn more by clicking here.