Eye openers for business owners

Do you own a business? Do you know someone who owns a business? Please share this article’s eye-opening information. I would love to hear some feedback on the below points.

I recently attended the annual conference in San Diego for LPL Financial, and there was a great deal of focus and attention placed upon the massive number and value of privately owned businesses that will probably be placed for sale by the aging baby boomer population (those born between 1946 and 1964). The numbers reported at the LPL conference, as follows, were astounding.

Ninety-eight percent of business owners don’t know the value of their business. Why is this the case? Many owners are too busy. Some may not want to know. Some may not keep accurate or “legit” records. It is important to know the value – for growth, borrowing money, mergers/acquisitions, estate/income planning, or potential sale.

Seventy-eight percent of business owners plan to fund retirement through the sale of their business. Many business owners don’t have any investment outside of their business. This can be a purposeful dedication of assets and cash flow to what the owner knows, is most comfortable with, and can most control. Some business owners have said to me, “I only put my money in things that I can control and know like the back of my hand.” 

This is good when things are going good, but having all of one’s eggs in a single basket can be very bad. While there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio, diversification is prudent in that it may reduce risk, and it can provide easier access to cash through the sale of liquid assets (stocks, bonds, mutual funds, etc.). Diversification does not protect against market risk.

Sixty percent of business owners have not met with a financial advisor. Again, maybe they are too busy. Maybe they don’t think a financial advisor can really help or help enough to justify the cost of advice. Maybe the owner thinks he/she will live forever, always work, or truly doesn’t want to plan for the future. Planning for the sale of a business needs to begin three to five years before the sales process commences, and the actual sales process could take much longer. It is prudent for business owners to have flexible, written financial plans that include a variety of timelines, dollar amounts, and scenarios.

Finally, 75% of business owners don’t have a succession plan in place. Cancer, car wrecks, heart problems, and family commitments could derail an owner’s plan to work forever or figure things out later. Some plan is usually better than no plan. And, in order to have a succession plan, an owner needs to know what her business is worth. Before one can plan for tomorrow, one needs to know what they have today.

CPAs and attorneys are often too busy to provide accurate and timely business valuation. Business brokers, like real estate agents, can give you their opinion of a listing price. But, ultimately, the value of an asset is determined by the buyer and seller who are negotiating at that time based upon a certain set of circumstances, but it’s certainly good to have statistically based evidence to support one’s opinion. It’s better for a business owner to explore these issues sooner rather than later.

Gulf County residentWalter L. Woodrick is a certified financial planner practitioner, and author of two books. His website is WoodrickFinancial.com, and his text number is 850.724.1369. Securities and advisory services are offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. #619412-1