Business Value: “You Don’t Know What You’ve Got Till It’s Gone”
Often in tough economic times, seeking out a business valuation is about as enticing as standing on a scale after Thanksgiving dinner. Because the information we expect to find is undesired, many of us would rather not welcome the discouragement.
When it comes to business value, the information we often want the least is the information we need the most.
In down economies, business owners often resist information about business value based on three very dangerous assumptions:
They assume that that value of their business has significantly dropped and will discourage them.
They assume that once the economy picks back up, the value of their business will return to what it was prior to the economic recession.
The value they placed on their businesses prior to the economic recession was also based entirely on an assumption.
When studies show that business owners commonly miscalculate the value of their own businesses by as much as 50-200%, it is not hard to imagine the potential financial damage these 3 assumptions can create for business owners.
When I speak to business owners daily about the value of their businesses, I am often reminded of that famous Joni Mitchell lyric from her song, Big Yellow Taxi.
“Don’t it always seem to go, that you don’t know what you’ve got till it’s gone”
As business owners address the economy and their future in the transportation industry, it is critical to assess whether or not the potential reward of reinvestment can justify the risks of losing some or all of “what they’ve got” now. What business owners may have now:
Good or average Credit
Money in the bank
Limited or manageable debt
Time for family
Strategic options (The longer you go down a certain path, the fewer options you have to change or reverse your destination).
Energy to start a new venture
Good reputation with vendors, community
Equity in home
Ability to get fair market for your business price now
Many business owners place these assets on the line daily for the hopes of a potential reward that is in many cases based completely on an assumed business value. Often, business owners confess to Charles Tenney & Associates that if they had clearly understood the value of their business, they would have addressed the financial risks of operating their business and the timing of their industry exit much differently.
The purpose of this article is not to discourage business owners about the potential value of their companies or to create fear that they may be losing value. As mentioned, many owners have already made this assumption on their own. Stop assuming and start assessing the facts. A few things to consider:
1) Your business value may not have decreased as much as you think in the past 6 months.
2) Your business value may not increase as much as you think when the economy fully recovers.
3) There is a good chance your business was not worth as much as you thought prior to entering this economic recession.
With that in mind, find out what you have to lose moving forward. Taking your chips off the table now, may be much more attractive than embracing the risks required to secure a greater reward in the future.
And remember, if you don’t find out what you have now, you may not discover what you had until it is gone.
For more information about understanding the value of your business or a possible business sale, please submit the contact form below.
