Your business is an asset. It’s up to you to determine its value.
I met with a client last week who is struggling with debt. She felt like she was failing as a business owner, or that her business was failing her. She thought that if things didn’t work out, she should simply walk away.
I asked her, “Would you walk away from your home if you were having trouble making the payments?”
“Of course not. I’d sell it. I wouldn’t just walk away from all that equity.” That’s exactly how you need to think about your business.
But what if your business can’t sell?
Liquidation risk is a major factor for most businesses. There needs to be enough value for someone to want to buy the business. It can be the difference between walking away from your business with nothing or, more commonly, debt and walking away with millions.
If managed correctly, you can flip the script.
HOW CAN YOU FLIP THE SCRIPT?
Many business owners are focused on surviving the next month, making payroll, or paying expenses. But what if, instead, you focused on increasing the value of the asset?
From this perspective, your business is an asset in your overall investment portfolio.
So, how can you make your business an asset that someone will want to buy?
There are several things a business owner needs to do to prepare his or her business for acquisition.
First, and as I wrote about last month, diversification is a good safety net. Similar to your investments, make sure there is diversification among your revenue channels and client mix. You don’t want your business to depend too heavily on one customer or one source of revenue.
Second, make sure your business is run systematically, with efficiency and regulatory compliance in mind. A buyer wants to know that the business operates well and that problems aren’t hiding beneath the surface. The business shouldn’t depend entirely on you – you run the system and the system runs the business.
Third, have a solid operation where leadership can rise through the ranks. Building leadership within the company can make the business stronger and help with succession planning. Many buyers will find added value in your leadership team.
Ultimately, the goal is to build a business that has value beyond the income it provides you with today.
If you are concerned about your retirement and don’t have a plan for growing your business as an asset, seek out advice. Together, we can find a way for your business to transform into a growing asset that can one day help fund your retirement.
About the Author
Edward Vela is an M&A Advisor and independent Financial Planner, also helping clients with raising capital. Edward has 15 years of wealth management experience but is not in the securities business. He writes this column for educational purposes.
Edward earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an MBA from the UCLA Anderson School of Management specializing in entrepreneurship and finance. You can contact Edward at 925-300-8805 or the empiriKalpartners team at empiriKalpartners.com.
