How Much Is Your Business Worth?

By Brian Baum, CEPA®, CFP®

You’ve put in all the hard work to start and grow your company, so now what? Whether the goal is to retire or continue growing, all business owners should know how to calculate and track their business valuation as part of their financial plan. This information is crucial to understanding the overall financial picture of both the company and the owner, and it can help make the business more profitable. Consistently tracking the valuation will help you feel confident in your business and in the ideal future you’re working toward. Though it’s important, it doesn’t have to be overly complicated. Here are three things to keep in mind as you consider the value of your business.

Get a Realistic Valuation

Many business owners believe their company is worth more than it is. You’ve put in all the blood, sweat, and tears to get to where you are, so this is understandable. But it’s important to keep in mind that what you find valuable in your business may not be what is actually valuable to potential buyers. 

At Interchange Capital Partners, our valuation process begins with giving you the real picture of not only what your business is worth today, but also what you need to do in order to maximize value in the future. This is our “Identify and Quantify” step in our process and it can help you achieve your successful transition. The fact of the matter is, for most business owners the value of their business often becomes a major source of their future funding that they will need to cashflow their life. Without a proper understanding of what you have, it’s impossible to plan for the future.

Understand the After-Tax Value

A business valuation can help you understand the after-tax value of your company. The amount you receive in a sale is not necessarily the amount you will take home. Some of the additional costs to consider include:

• Capital gains tax on the profit made from selling the business
• Business broker commission
• Investment Banker’s success fees
• Attorney’s fees
• Transfer fees
• Assignment fees
• Transfer taxes

Understanding your final take-home amount, after all taxes and other transaction costs have been paid, is crucial to planning for your future. The sooner you can get a realistic after-tax valuation, the sooner you can make realistic plans for the future or begin to work on potential changes to increase your valuation.

Maximize Your Business Value

The last thing to keep in mind is that maximizing your business value is something to be incorporated into your business every day. Don’t wait until right before you want to sell or transfer the company. Making small improvements can greatly increase the value of your business, and your future lifestyle. Here are some key areas to focus on to maximize your value:

• Management: Your management team should be strong. Buyers want to see that key talent has been retained and developed over time and that company culture is managed well.
• Revenue: Recurring revenue that is stable and likely to continue is a huge plus for future buyers.
• Customer diversification: Just like you want to diversify your investments, your customer base should be diversified too. If all of your company’s business is tied to one customer, it will be significantly less valuable than if you have a broad customer base.

Many buyers want to see that there are solid plans in place, and it’s important to show that your business has a strong purpose and forward momentum that will continue even after you are gone. Remember that focusing on building business value today helps reduce the potential funding gap that could exist when it comes time to monetize your business.

Take Action

When you’re ready to formalize your business valuation plan, partner with a team of professionals to help you through the process. We at Interchange Capital Partners specialize in helping business owners like you make the most out of the business that you have worked so hard to build, ensuring your future with confidence. To learn more, email us at team@interchangecp.com or call our office at 412-307-4230 to schedule an introductory appointment. 

About Brian

Brian Baum is managing director of Interchange Capital Partners, an independent registered investment advisory firm providing family office and transition planning services to family businesses. With almost 10 years of experience, Brian spends his days working with his clients to determine ideal strategies to simplify and optimize their processes and the future of their business. He is known for his attention to detail and going the extra mile to become familiar with the dynamics surrounding each situation so he can offer customized and creative guidance.

Brian is also a Partner at Defiant Interchange Advisors, an M&A Advisory firm specializing in strategic mergers and acquisitions advisory for middle market businesses. The firm’s focus is to maximize business value for owners during the M&A process, while simultaneously optimizing post-transaction net worth for the business and family.

Brian has a bachelor’s degree in psychology with a minor in business from Penn State and is a  Certified Exit Planning Advisor (CEPA) and CERTIFIED FINANCIAL PLANNER™ professional. Brian is also the president of the Pittsburgh Exit Planning Chapter, which he helped found in 2019. The chapter’s mission is to give business owners a forum to become educated on how to build a valuable and transferable business through a proven process. Outside of work, Brian enjoys spending time with his wife, Natalie, and their daughter, Quinn. He is also an avid golfer and likes the occasional scotch and cigar. To learn more about Brian, connect with him on LinkedIn.

Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial planning services. Any reference to the terms “registered investment adviser” or “registered” does not imply that INTERCHANGE CAPITAL PARTNERS or any person associated with INTERCHANGE CAPITAL PARTNERS has achieved a certain level of skill or training. A copy of INTERCHANGE CAPITAL PARTNERS’s current written disclosure (ADV 2A Firm Brochure) discussing our advisory services and fees is available for your review upon request. INTERCHANGE CAPITAL PARTNERS, in addition to providing investment advisory and financial planning services, provides business consulting services. In connection with its business consulting services, INTERCHANGE CAPITAL PARTNERS does not provide tax or legal advice.

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