It can be amusing when at the outset of a sale of a business, the discussion becomes about equating the seller’s perceived financial retirement needs. In my years of performing business valuations, I’ve never once used the “Seller’s Retirements Needs Method” to determine the value. In fact, there is no such method. As a business owner, you should be advised that your retirement financial needs or goals will more than likely have no bearing on the true value of your business.
If you are a business owner who is thinking the golden retirement years of your life will be funded by the proceeds from the sale of your business, think again. You don’t want to sit down at the bargaining table thinking the value of your business is $2,000,000 (the amount you need for a comfortable retirement) when in reality it may only be worth $500,000. An understanding of the value of your business should occur years before you embark on the sale of your said business.
Your business may never have sufficient value to fund your retirement, and if that is the case, the sooner you know this the better. It could also be worth more than enough to fund your retirement, which is clearly the ideal situation, but you will never know that without educating yourself.
With the right amount of time, the short fall of business value to retirement needs might also be correctable. A business valuation consultant can not only tell you what your business is worth, but also tell you what will drive value in your industry. This information can often be leveraged into a business plan that can direct day-to-day action that will increase your company’s value.