Understanding Business Valuation

Advisory | Prager Metis | Jun 17, 2015

Understanding Business Valuation

For most entrepreneurs, their business is the largest asset that they own. Further, most entrepreneurs have built their company with an eye towards an eventual sale and retirement.  Given these facts, a successful and enjoyable retirement is largely contingent upon the successful sale of the company. Given the importance of the business in their life plans, it’s critical to rely on more than just the subjective opinion of friends and acquaintances who have sold a business.  Again, it’s likely the largest asset in a portfolio – why leave that to hearsay and chance? Exit planning ultimately comes down to asking (and answering) one key question: “Can my company be sold for enough money to fund my retirement and lifestyle requirements?”   In many cases the answer is now – but you are now well positioned to attack the problem and position yourself for a successful exit.

What to Do Once You Know Your Value

Involve your deal team.  Selling a business of any size is a significant undertaking. Ideally, you should have an exit planning team of trusted advisors:

Valuation Expert

CPA / Tax Advisor

Financial Planner / Wealth Manager

“Improvement” Consultant

Business Broker / M&A Intermediary

Transaction Attorney

We’re often retained by sellers looking to exit their business immediately.  We can say without exaggeration that it’s terrible to be the bearer of bad news when current exit plans do not meet current reality.  Getting a team in place early, understanding valuation early, and putting a plan in place is the surest recipe for success when it comes to exit planning and a happy retirement.