Business Valuation – Critical to Enhance Value and Manage Wealth

As a business owner, the value of your business likely represents a significant portion of your wealth.  According to a publication by Mercer Capital:

"About 75% of all private equity is owned by households for whom it constitutes at least half of their total net worth. Households with entrepreneurial equity invest on average more than 70% of their private holdings in a single private company in which they have an active management interest."  [1]

Enhancing and managing this privately held business wealth is critical to business owners and this process begins with an independent business valuation.

 

Value Enhancement

 

The process of enhancing the value of your business begins with a business valuation which provides a benchmark from which to measure value increases over time.  The valuation process will also identify key value drivers to focus on to enhance the value of the business.

 

Resulting value increases will provide a significant return on the investment in a business valuation and value enhancement initiative.  We have seen clients double their business value within a two year period http://jasonkwiatkowski.blogspot.ca/2013/12/how-to-double-value-of-your-business-in.html).

Potential purchasers will be very impressed if you have documented how you increased the value of your business over time and identified opportunities for further growth and value enhancement.  Your chances of attracting numerous suitors and securing a deal for top dollar will be greatly increased.

 

Wealth Management

 

In order to effectively manage your wealth you need to know the value of your assets, including your privately held business.  Annual fees are paid to wealth managers to manage your liquid investments (e.g. publicly traded securities).  Monthly statements are provided setting out the value of these investments to assist with decision making.

 

Privately held business owners often spend significant time managing the business but little time managing the wealth associated with their business.  An effective wealth management strategy allocates a percentage of the value of the business to managing this privately held wealth.

 

The One Percent Solution suggests recommends for business owners to invest 1% to 2% of the value of the business towards a "wealth management budget" which includes, among other things, an annual business valuation and monitoring critical success factors and key value drivers.

 

 

All business owners will one day exit their business.  An independent business valuation can help you identify what percentage of your overall wealth is tied up in the business and identify key areas to focus on to enhance the value of your business.

Contact us at jason@vspltd.ca or www.vspltd.ca to find out more about the valuation process and how it can help enhance the value of your business and manage your wealth.

 
1.  Source: The One Percent Solution, Z. Christopher Mercer, 2007.