When the term exit planning comes up, most business owners tend to keep the subject for later. Sometimes it's because they are still at the initial stages, and sometimes, they get too caught up with building the business. The usual school of thought is: what's the whole point?! Or even, what's the need?
However, the smartest business owners of all times tend to prioritize exit planning above all. Why? That's because it sums up the overall output that you will be walking out with. Thus, giving you a definite estimate of the required input. Even more, it lays out a clear idea of what you should avoid.
With that said, here in this article, we shall focus on exit planning and its heart, i.e., valuations. What it is, why it is, and how it is, we will unveil it all soon. Read on to figure!
What is Valuation?
Step one towards grasping the entire concept is to understand what valuations happen to be. By definition, Valuation refers to the estimation of an object's or property's or asset's worth. Usually, the estimate is given by a professional.
Related Article: Business Valuation – Why Do We Need It and How Does it Work
Determining the Worth of Your Company
Knowing the value of your company stands next to knowing what valuation happens to be. You can acquire the value of your company by a complete analytical process. As mentioned earlier, for accurate deductions, you will need to involve third-party professionals.
Related: Find an Appraiser Near You
They will be assessing the current earnings of your business module and estimate the future limits and prospects. According to your monthly or weekly progress, they will estimate the potential of your business and compare it with other companies to determine its position in the market. The same applies to the risk profile.
Risk profile fundamentally refers to the nature and amount of risk posed by external and internal entities to your business. It may also refer to evaluating the willingness and ability of a company to undergo potential harm. A risk profile is crucial in determining the investment and asset allocation in an organization. Plus, it aids in figuring out ways to negate any potential harm and danger to the business.
In the case of determining a risk profile, valuation plays an essential role. It helps in calculating the ability of a business to take risks. If a company has a tremendous amount of assets, it has the potential to take higher risks. The willingness depends on whether the business owners like to take risks and dive deeper for success. Or, if they prefer to walk on shallow waters and play safer. However, the Valuation of a business remains the determining factor. It decides if the company will potentially stand longer in the market or go down with one hit. Remember, a higher risk profile in aspects of Valuation, the higher your business potential.
Understanding Valuation
A valuation can get complicated when it comes to practical application and understanding. Often, valuation specialists can also mix up things inside your head, as their valuations may differ. Some companies appear to hold a lot more worth than they do in reality.
Hence, every business owner needs to understand the mechanism of Valuations. The calculation process gets based on:
- Multiple varying metrics, such as the Market capitalization, price to earnings ratio, etc.
- Different methods of each professional
- Jargon and new terminologies such as growth potential of businesses
- Major economic factors that can impact the value of a business
A crucial step business owners should take care of from the start is to keep track of things. For that, tools like Track Time 24 help tremendously. If you keep everything manageable and easy to track, it gets more convenient for professionals to calculate the Valuation.
Maximizing Valuations
If you aim to craft the best exit plan then, you've got to work on maximizing the values of your business. But the question comes to you more like added work hours. No? How exactly will you maximize the net worth of your business, along with laying strong and stable foundations for your newly found venture?
Well, the answer is a much-integrated phenomenon.
Circulate the Savings:
By circulating your savings, we refer to keeping the earned cash inflow. You've got to keep some of your savings saved or better termed as withheld for emergency cases. However, you must keep most of its inflow to maximize the apparent and actual value of the business. Now how to do that? Well, you can do so by investing in better technology or staff for better output. Or perhaps, invest in expansion or marketing for generating better outputs.
Keep Taxes in Check:
Another way to maximize valuations is to keep your company or business tax-free. You can do that solely by paying back taxes on time. No investor or buyers would be interested in an indebted or legally weak business. Simultaneously, you can work with a financial expert to minimize your tax liabilities. In this way, you will be clean and clear.
Keep the Documents in Check:
Similar to taxes, keep your financial documents always in check and up to date. Ensure they represent the most recent status authentically and correctly.
Related: Required Documents for Selling a Company
Lock Your Key Resources just as-is:
Determine which aspect of your business forms the primary fuel. Is it the staff? Technology? Customer base? Whichever it is, you should know that you've got to protect it until the very end. Now, the protection here means that you should keep it from depleting in quality or quantity, however relevant to your business. Instead, the goal should be to propel that particular aspect towards greater growth.
Grow your bottom line - make your key resources work for you | BonaFideBusiness
Know When You're Ready:
Perhaps, the most basic yet essential way of maximizing the value of your business is initiating the valuation process at the right time. You know, you will have to involve a third party. It will cost you both time and money. So, do your homework, and only then initiate the process. If you initiate it prematurely, you would not only lose resources on your end. But also, may sow a seed to the growth of a bad reputation in the industry.
Related Article: When Is the Right Time To Sell Your Business
Final Thoughts
Towards the end, all we would remind you yet again is the very fact that exit planning is not the last step but the first. It is your key to a successful business at the end of all plans. For that very reason, it is essential for you to deeply understand and decipher the art and science of valuations. Remember, no resource on the internet compensates for personal experiences of you and your seniors. So, as you build your exit plan and maximize valuations, you ought to keep them in check. Good luck!
