Why would you want to do that if you were not going to sell it? After all, there’s some trouble and expense involved isn’t there?
There are two reasons
- because you need to plan for your future and that involves the business and
- a potential exit, and as for the trouble and expense, not necessarily.
It’s not difficult and expensive
You don’t need a formal valuation. You need an exercise which tracks velocity. In other words, speed and direction. We do this for most of our clients as a matter of course. It takes no time at all, and it gives you better information about where you’re going and how you’re going to get there. We don’t suggest that the valuation is what the business is actually worth. You only find that out when you’ve talked to a business transfer agent skilled in that industry and tested the market. But it helps you plan and relieves a worry.
Planning for the future – Harry’s story
Harry (not his real name) runs a business which is high volume, low margin with a lot of labour involved. It’s in a regulated market, and he has had trouble recruiting a compliance manager who is also business orientated. Harry has been running this business for a few years now, and it’s profitable but needs constant attention. His last manager left a few months ago, and he’s been having to do 75-hour weeks to pick up the slack. He’s got a good pension scheme, and he could retire if he wanted to. But he is loath to forgo the income from the business, and he’s tired of doing two jobs.
We’ve recently done the accounts and valuation. But what we can see from our valuation is that it’s increased by the amount of the annual profits every year. That makes Harry a lot happier, and more willing to put up with a few more months of drudgery whilst he recruits a new manager. He is better aware that he is building his family’s future at the right speed to achieve his goals.
What if the valuation doesn’t change?
For another client, the valuation hasn’t changed in three years during the pandemic. That of itself might be a reasonable result, given they are in a tumultuous market. Also, the valuation is based largely on balance sheet assets rather than profitability, and the owner is of an age where he should be thinking about inheritance tax planning. Some assets in the business will not qualify for relief from tax. So whilst the valuation hasn’t changed, the time frame has and the need for a different conversation has changed with it to encompass business risk and getting assets to his family in due course tax efficiently.
In each case, we are thinking about the business owner’s ultimate personal goals and making sure that the business facilitates them. We are not stuck on what the business is doing year to year. We need to take the same long-term view that our clients take to help them achieve their goals.
What plans have you made to build value and make life easier for yourself, both now and for later?
We will give you a free 3-year valuation. All you have to do is give us 5 years accounts and answer a couple of questions. Find out now and start planning. Email email@example.com or call 01202 520010.
At Hixsons we make sure our clients are agile, flexible and resilient so that they are better able to respond to shocks. In the spirit of helping our business community we have resources in our learning centre where you will find various tools and templates for your business. We do not ask for your data and it’s completely free.