- Author Chris Hadjiyianni
- Year Date 2019
- Location Winnipeg
- Category Business
Few business owners relish spending money on something unnecessary. For most owners, hiring an expert to estimate the value of their companies falls into the unnecessary category. Thus, it is no surprise that owners typically respond to an Exit Planning Advisor’s recommendation to get an estimate of value for the company with some variation of, “Now? But I’m not planning to leave for years,” or “I built this company, so I know what it is worth better than any so-called expert.”
Before you join these owners and scratch business valuation off of your Exit Planning todo list, consider the following five reasons why you should put an estimate of value at the top of your list. An estimate of value does the following:
1. Establishes your starting line and distance to the finish.
2. Tests your Exit Objectives.
3. Provides important tax information.
4. Gives you a critical litmus test.
5. Provides owners (and employees) an objective basis for incentive plans.
The following list sums up some key aspects about estimates of value.
• They are not a full-blown opinion of value, which you will need just prior to your
transfer of ownership.
• They cost about half as much as a standard opinion of value because they lack the supporting information contained in a standard opinion of value.
• They are the basis for the complete valuation to be completed later.
• They are used for planning purposes only. They cannot be relied on for tax or other purposes.
Let’s examine the reasons why an estimate of value is a tool you must include in your Exit Planning tool kit.