For many established business owners, their business is their most significant family asset. That’s why the successful ones regularly review things like succession plans, asset protection, owner agreements and value improvement initiatives, to make sure they’re on track to achieve future life and family plans.
If you’re a business owner who doesn’t take regular reviews of your own business’s value, it’s time to get serious. Whether you’re running a business on your own, in partnership with other people or another company, or it’s a family affair, you need to be thinking about what that business might be worth now and into the future.
Successful business owners know the difference between what their business is worth today and what they need it to be worth to achieve their personal and family life goals in the future. They probably also check the value of their business every year, as part of their family wealth creation and asset protection plan.
To make sure business owners stay on track, these are some key areas that need to be reviewed annually. A regular and comprehensive review of these quantitative and qualitative risk and value drivers will provide business owners several benefits. Ready to talk business?
Implement Succession Planning
A big part of succession planning involves considering alternative ways of rewarding your key people or employees. This might be via Employee Stock Option Plans (ESOP) or Employee Share Schemes (ESS) . Whether you're transitioning key employees or the next generation of family ownership, it prompts business owners to prepare and annually review their succession strategy, avoiding situations where transitions are poorly implemented due to unplanned or unexpected events, which can set the business back financially and culturally.
Plan for Expansion or Exponential Growth
If you grow without a plan there’s probably a decent slice of luck involved. And that luck will run out eventually. Smart business owners plan for growth by forecasting to understand when they’ll need to raise capital , or when to seek additional business partners with the skills to help expand or ramp up growth. We often see clients who have built a successful business from scratch and can grow the business to a certain valuation point, but to go to the next level, they need additional complementary skills, experience, expertise and potentially funding to create exponential growth. A thorough understanding of your business value and risk drivers will help you identify the additional skills and experience you need at the ownership or board level.
Review Your Asset Protection
Smart business owners also regularly review their business structure and consider if the current structure is providing them and their family with the necessary level of asset protection. This review also allows business owners and their advisors to explore restructure opportunities, some of which come with substantial commercial and tax benefits. These can only be accessed where the value of the business owner’s assets (including the business) or the business turnover is below certain legislated thresholds. Restructuring opportunities with obvious commercial and taxation benefits are limited, which is why it should be considered annually. Don’t miss your chance!
Identify Business Value Improvement Initiatives
No two businesses are the same. That’s why all small business owners need to understand and regularly review the qualitative risk and value drivers specifically affecting their business . Sometimes you might be too close to spot risks or opportunities, which is where an advisor can be worth their weight in gold. Perhaps you’ll uncover insights that lead to pricing and sales opportunities. Maybe you’ll find operational and internal process inefficiencies that can be addressed. Or, you haven’t had the time to spot industry trends and you need some help with innovation and technology. Perhaps there are people & culture strategies you didn’t even know existed. Any and all of these factors can allow you to target value improvement initiatives that can make a huge difference to your business’s value.
Revisit Business Owner Agreements in Place
Businesses owned by two or more parties will have an agreement between the owners that sets out the rules governing the relationship. Generally it stipulates the valuation methodology to be used in valuing the business . But if the business has changed or grown over a period of time, it can become unfit for purpose.
Revisiting owner agreements gives business owners time to consider and understand the rationale and appropriate circumstances for using different valuation methodologies, including specific industry rules of thumb. When reviewing, consider if the current owner agreement needs to be updated before it becomes too late. Neglecting this will come back to bite if a dispute arises. Or, if inappropriate valuation methods are used in a transaction, the benchmark for future transactions may be set well below your business’s true value.
Talk to a BlueRock Small Business Expert to Start Your Annual Review Process
If you’re not doing some of these things, it’s time to up your game and ensure your maximising and protecting the value of your business. Whether it’s planning for the unexpected, preparing a business for sale or making sure the next generation is set up for success in transition, our business advisors are here to help you review, plan and win at business and life. Get in touch with us to get started , we’d love to hear about your business adventure.
