How much is your business really worth?

Thought Leadership presented by The Capitol Bay Group.

A challenge we encounter when helping business owners through the financial planning process is that their biggest asset is easily their business, but they may not have a realistic expectation of what that business is worth.

Most owners understand that their company is worth a multiple of their earnings (also known as free cash flow), and they may even have a professional appraisal in hand telling them what their business is worth. But, the reality is that your business is only worth what someone will pay you for it, and this amount (the multiple you receive on your earnings) depends on a lot of variables.

In our experience working with business owners, they generally tend to overvalue their companies, and are surprised when appraisals come in much lower than their estimates. This is especially true in the heady days before major economic downturns, which create bad conditions for monetizing your business asset. In today’s world, there are a number of imbalances that have the potential to cause major financial and economic issues that could negatively impact your ability to sell or monetize your business asset.

Identifying your business gap

The difference between what a business is worth and what it could be worth is called the business value gap. Bridging this value gap can be achieved in many ways that go beyond simply saving the equivalent cash required to close any shortfalls that keep you from meeting your personal financial goals.

Many of the questions surrounding the value of your business can be answered by aligning yourself with a business advisory team, including a business advisor, financial advisor, CPAs, corporate attorneys, business valuation experts and executive coaches. While this lengthy list is a bit intimidating, these advisors may be the key to understanding your company’s true potential.

The Capitol Bay Group works with other business planning professionals to help CEOs and company decision makers identify how your personal planning, business planning and monetization intersect and how to help them work together. For additional information on this topic please give us a call.

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