Do you know how much your business is worth? Most small business owners don't—making it impossible to plan their exit strategies.
George S. May International, the Park Ridge, Ill.-based consulting firm, surveyed 921 small business owners and found 58 percent haven't had a formal valuation done within the last year and aren't anticipating one in the near future. Many respondents—41 percent—think they don't need valuations until they sell the company.
But these entrepreneurs are missing the point, says Paul Rauseo, George S. May's managing director. Valuations aren't just about assigning a price tag. Every business owner needs a long term exit strategy, and the planning process has to start with the company's real value.
"The true reason for valuations is to make sure the business is a transferable asset, but I'd say 90 percent aren't," he says.
Even the 35 percent of owners who say they'll never sell need a plan for their eventual death. "You never know what tomorrow will bring, and everyone's eventually going out of the business, either vertically or horizontally," Rauseo says. "A planned exit is better than one that isn't."
But Rauseo stresses valuations are also a helpful look at how a company is faring. "It can be kind of a wakeup call for owners to keep what's next in their business at the front of their minds," he says.