September 26, 2019

Your Business Is An Investment, Start Treating It Like One

By Thomas Insalaco, Manager, Advisory Services

Your Business Is An Investment, Start Treating It Like One Advisory

Most owners of successful private businesses spend countless hours managing the operations of their business. However, in our experience, much less time is spent managing the wealth tied up in the business. Given that a private business will typically account for the majority of the net worth of the owning family, much more time should be spent on activities that will help manage, measure, protect and grow the wealth in the business.

Take a minute to think about the following questions.

  • What is my business currently worth?
  • What have the economic returns on the investment in my business been over the past few years and what are they expected to be going forward?
  • Does my business have a formal distribution policy and is that policy aligned with my personal/family needs and goals?
  • Are there any major risks that could significantly hurt my business?
  • What happens if I am suddenly unable to continue managing my business?
  • Is there a buy-sell agreement in place, and how would it work if a shareholder needs to be bought out?
  • How would you react to an unexpected offer to be bought out?
  • Would there be a market for your business if you needed to sell quickly?

If you don’t have solid answers to all of these questions, then you likely should be spending more time and thought on these types of issues. You wouldn’t want to find out that your business is worth much less than you expected when you need to cash in on all of the hard work and sacrifice you have put into your business over the years. Proactively consulting with your team of financial and legal advisors regularly will help protect and grow the wealth you have built up in your business.

In this monthly column, we will discuss ideas that can be used to help protect and grow the wealth built up in your business and why these types of ideas should be considered. We hope you will find this information useful and we welcome the opportunity to discuss these ideas with you further.

Tune in next month, where we will discuss how different reasons for valuing a business will result in different answers to the question of how much a business is worth.