What is my business worth?

Originally published in the News Star and the Shreveport Times on Sunday, March 27, 2016.

Question: I own my own business and I guess I’ll want to retire at some point. I’ll be leaving it to my kids one day. They want me to get it valued, but why does that even matter? It will just be worth what it is worth.

Papers with graphs, calculator and Valuation concept.Answer: True enough, but for whom? And when?

Here are some questions to jump start your thinking. The answers might offer reasons why you should (or should not) have your business valued.

Do your own a business or do you own your job? Being self-employed is not the same as owning a business. A business has a value beyond the assets it owns if it can run (and make a profit) without you involved in the day to day operation.  If you are simply self-employed, once you die, so does the value of your business.

How much do you live out of your business now? I assume you take income from the business now. You probably pay yourself a salary, but you may also take profits or rents as well. It is not uncommon for business owners to fund vehicles, hunting camps, cell phones, club memberships and a certain amount of travel through their business. Do you have any idea how much of these “perks” you provide yourself now?

And do you have an expectation that will continue after you retire?

Do you expect your business to fund some or all of your retirement? If you plan to leave the business to your children, will you do so at retirement, death or some time in between?

If you leave it to them at your retirement, will you sell it to them or gift it to them? Either way, do you expect them to keeping sending you money after they own the business? Do they know this?

And if your plan is to leave it to them upon your death, who will run the company while you enjoy your golden years?

Do you have non-family partners? If you have partners or co-owners of the business, will they go into business with your children? How about you with their children if something happens to them?

If you have partners, do you have a formal (written) buy-sell agreement in the event of your death? And is it funded with life insurance, or are you planning for the business to buy you out with profits?

Are any of your children in the business now? Unless all of your children work in the business or none of your children do, you have a potentially sticky problem when you die. You’ll have some of your children that have invested their blood, sweat and tears into making the business what it is, and others who have gone on to other pursuits. At the time of your death, is it really fair to simply divide the ownership equally?

Your children in the business will likely be focused on building its long-term value (so they can sell it one day) and your children not in the business (yet owning equal amounts) will likely voice their opinion that profits should be distributed often and liberally.

You’ll put your children at odds with one another.

If your answers to the above questions indicate a need to know the real value of your business, get it done right. It isn’t enough to guess.

I suggest a proper, written evaluation done by a credentialed appraiser. Ask your CPA if they can recommend a Certified Valuation Analyst (CVA), Accredited Senior Appraiser (ASA) or Accredited in Business Valuation (ABV).

There are lots of ways to deal with these issues, but any evaluation of the problems and solutions will begin with answering the question…

“What is this business worth?”

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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at bmoore@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.

About

Argent Financial Group

Celebrating its 30th anniversary in 2020, Argent Financial Group (Argent) is a leading, independent, fiduciary wealth management firm. Responsible for more than $30 billion in client assets, Argent provides individuals, families, businesses and institutions with a broad range of wealth management services, including trust and estate administration, investment management, ESOPs, retirement plan consulting, funeral and cemetery trusts, charitable organization administration, oil and gas (mineral) management and other unique financial services. Headquartered in Ruston, Louisiana, Argent was formed in 1990 and traces its roots back to 1930.

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