Business Owner Retirement

Here are a three very interesting statistics:
  • 77% of business owners today are between the age of 40 and 69
  • 78% of business owners expect to fund at least 80% of their retirement needs through the money they will receive on the sale of their business,
  • 98% of the world’s 200 million small businesses don’t know what their businesses are worth worth

If you are going to do any kind of planning - whether it is regular business planning or financial planning involving your business - you should have some idea what your business is worth.

Business Valuations

While rules of thumb can get you in trouble when it comes to business valuations, the most common metric for selling a business is "the multiple." Sometimes, people value a business based on a multiple on the annual sales, but usually, the multiple is based on EBITDA (earnings before income taxes, depreciation, and amortization). Generally speaking, the larger your company's EBITDA, the greater the multiple that someone would be willing to pay you for it. 
Of course, the valuation of your business is based on more than just earnings. Buyers are going to want to know things like:
  • your industry - Is it growing or shrinking?
  • your company's earnings - Are they growing or shrinking?
  • your customers - Does more than 5% of your revenue come from a single client? If so, your company may have a "concentration of risk" problem. 
  • your employees - Do you have good employees? What about your key people? Do you have key person insurance on them? Have you "handcuffed" them to the business through some form of deferred compensation? 
  • your revenue - Is your revenue stream completely at your customers' discretion, or have you "locked them in" through some kind of contractual commitment. Buyers almost always pay more for a business when the revenue is guaranteed by contract. 
  • your products - Are you selling the same thing that you've always sold, or is your revenue coming from a new and innovative product or service. There is a pro and con to both scenarios, but in the former, buyers are concerned they might be buying something "stale." 
  • your financials - Are they organized? Can you access them easily? Do you know your business's metrics like the back of your hand? Ideally, are your financials audited? 
Knowing the true value of your business is critical to proper business planning and achieving personal goals. Through our valuation process, we can help answer the questions that will lead you to make informed decisions for your future ... Let us show you how!
Strategic Wealth, LLC | 5957 Shiloh Rd, Suite 114 | Alpharetta, GA 30005 | (678) 456-5060