Many executives of both public and private firms get a physical check-up once
a year. Many of these same executives think nothing of having their investments
checked over at least once a year – probably more often. Yet, these same prudent
executives never consider giving their company an annual physical, unless they
are required to by company rules, ESOP regulations or some other necessary
A leading CPA firm conducted a survey that revealed:
- 65% of business owners do not know what their company is worth;
- 75% of their net worth is tied up in their business; and
- 85% have no exit strategy
There are many obvious reasons why a business owner should get a valuation
of his or her company every year such as partnership issues, estate planning
or a divorce; buy/sell agreements; banking relationships; etc.
No matter what the reason, the importance of getting a valuation cannot be
- An astute business owner should like to know the current value of his or
her company as part of a yearly analysis of the business. How does it stack
up on a year-to-year basis? Value should be increasing not decreasing! It
might also point out how the company stacks up against its peers. The owner’s
annual physical hopefully shows that everything is fine, but if there is
a problem, catching it early on is very important. The same is true of the
- Lee Ioccoca, former CEO of the Chrysler Company said in commercials for
the company, “Buy, sell or get-out-of-the-way,” meaning standing still was
not an option. One never knows when an opportunity will present itself. An
acquisition now might seem out of the question, but a company owner should
be ready, just in case. A current valuation may be as good as money in the
bank when that “out of the question” opportunity presents itself.
- One never knows when a potential acquirer will suddenly present itself.
A possible opportunity of a lifetime and the owner doesn’t have a clue what
to do. Time is of the essence and the seller doesn’t have a current valuation
to check against the offer. By the time it takes to gather the necessary
data and get it to a professional valuation firm, the acquirer has moved
to greener pastures.
Having a company valuation done on an annual basis should be as secondary
as the annual physical – it really is the same thing – only the patients are