Nearly half of all family-owned businesses don’t have a plan for what happens next. If you don’t know where to start when handing the company to the next generation, your family could be out of the job.
43% of family businesses don’t have a system in place for a transition to the next phase, even though three-quarters intend to keep the company traveling the family line. While crafting a comprehensive plan requires looking at many facets of the business, one of the most important steps may be determining the worth of what you’re working with.
The hand-off doesn’t have to be a package deal. You may decide it’s best to section off parts of the business for sale, lease them out or divide them between family members. But before you take those steps, it can help to know what it’s all worth.
There are three ways most businesses determine their value, and which one you choose depends on your circumstances:
- Assets: Taking a look at what you’ve got on your books may be the most straightforward method. The value of everything you own, from products to intellectual property, minus your liabilities, like loans or outstanding debts, could give you an answer.
- Earnings: What your business makes could be its value. The return on a buyer’s investment, average cash flow or projected earnings could indicate what your company could fetch.
- Markets: Comparing your shop to others in your field could also yield your number. You’ll likely have to find businesses that operate like yours, under similar circumstances and in a comparable region. The more samples and variables you can line up, the more accurate your number may get.
Deciding how to divvy up the business is next on the list, but knowing where you stand is a good start. Make sure you understand what your business is worth on paper, and that information could be priceless when it comes time to make big decisions.