The importance of knowing the value of your business

Phil Harwood

A business owner’s greatest asset is usually the business itself. While they may own other assets, such as real estate, their business is almost always their most valuable asset. There are exceptions, of course, but this is the general rule. Let’s call this the greatest asset rule.

Closely related is another general rule: Owners usually don’t know the value of their businesses. Most often, business owners have overinflated expectations of what their business is worth and are disappointed to discover the reality of the situation. If this discovery occurs well before the owner’s exit, there is still time to recover. Both in terms of adjusting expectations and increasing the valuations. But, it may be devastating if this occurs simultaneously with the owner’s exit.

A third general rule is the topic of their exit and business valuation interests business owners, even if it is in the distant future. They watch Shark Tank. They listen to conversations about what others are doing. All of this piecemeal information comes together to formulate the business owner’s perception of what their business might be worth. But this is not a reliable, systematic methodology.

Art of valuation

Valuation is an art, not a science. There are many valuation methods. And there is a plethora of certifications for valuation experts. However, some basic elements go into valuation models.

Business owners can do well by learning these elements. Even better, a business owner would do well to become educated about these elements BEFORE their exit. This is while there is still time to improve the valuation.

If you read or listen to books, I highly recommend Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow. Building your company to sell it is pure genius. Every business owner would do well to read this book. Over the years, I have met a few people who actually have done this. These owners are extremely well-informed and visionary people. Not all business owners share these attributes, but all should learn about their inevitable exit.

Learn from me

This October, you will have an opportunity to learn about the elements of valuation and perform an initial valuation for your company. I’m presenting a session at Equip Exposition on this topic, hosted by Landscape Management.

You will leave this session with a solid understanding of valuation methods, valuation elements, an actual preliminary valuation of your company and action steps to take to move forward toward your exit.

If you haven’t attended before, Equip Exposition is the largest trade show in our industry. It attracts more than 25,000 attendees to interact with suppliers and educators in landscaping, outdoor living and equipment. Equip Exposition takes place from Oct. 17-20 at the Kentucky Expo Center in Louisville, Ky. Registration opened in April, and area hotel rooms will sell out. So now is the time to plan your trip and book your hotel rooms. Now go forth.

Register now

Attendees must preregister to attend LM’s educational sessions. Register for Equip Expo by following this link to get a 50 percent discount on your Equip Education registration.