Author: Tanya Titman, Managing Director Date Posted: 9 January 2015
Many Business Owners put their heart and soul (not to mention their life savings) into their business with a hope that one day it will provide them with a retirement nest egg. Unfortunately, many of these business owners do not seek advice on the value of their business until they are ready to sell. By this time, they have lost the ability to plan for the sale and increase the potential sale price.
Business valuations have a definite science behind them. Your business value is determined by assessing the relevant risk profile of your business, as well as the cash flow that the business is able to generate and the 'normalised' profit that the business has achieved over the last 3 years.
To get the maximum value out of your business you need to plan ahead.
Like any financial plan, if you are basing your retirement on the eventual sale of your business, you need to be prepared. Start by understanding the value of your business now. Then identify how much you need to generate from the sale of your business to be able to retire comfortably. The difference between these two figures is what's known as the Business Value Gap.
How to bridge the gap?
Once you know what the gap is, you can put in place a strategy to increase your business value. You may need to delay your retirement plans for a few years, but if that means you can retire comfortably, it is probably worth it.
Having your own business gives you the power to write your own retirement cheque. Having a business advisor on board to help you bridge the Business Value Gap means you can maximize the size of that cheque.