As a business owner, your job may seem like it includes a thousand responsibilities, but in reality, it boils down to two core goals:
- Increase the value of your business
- Remove the obstacles that prevent you from increasing that value
Which leads to the question at the heart of it all: What is the value of my business?
Before you can grow, protect, or sell a business, it is important to first clarify what “value” actually means. This article breaks down how business value is determined, why it often differs from what owners may assume, and how a professional valuation can empower better decisions, both now and down the line.
Why Business Value Matters for Better Decisions and Planning
We are living through the largest generational wealth transfer in history. By 2045, an estimated $84 trillion is expected to pass from Baby Boomers and the Silent Generation to their Gen X and Millennial heirs. A major part of that wealth is tied up in privately owned businesses, many of which are facing ownership transitions in the coming years. For some owners, a family succession is not an option, and they must plan and prepare to sell to an outside buyer.
Regardless of the path, for owners nearing retirement or exploring exit strategies, knowing the value of their business is the foundation for everything that follows. It informs tax planning, deal terms, timing, and ultimately, how well that wealth is preserved or passed on.
Importantly, the definition of “value” can vary depending on the purpose of the valuation. Different types of business ownership transactions call for different standards of value, each with its own assumptions and implications.