Dec 20, 201812:56 PMExit Stage Right
with Martha Sullivan
Introducing the 5 stages of business value maturity
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Maturity of a business is an interesting concept. Some measure it in terms of how old the company is, others measure it in terms of where its products and services are in their lifecycles, while others still consider the experience of the management team. Most don’t think about business maturity in terms of its approach to its value.
Where is your company at within the stages of value maturity? Chances are high that you and your company are in the beginning stages, regardless of how old or mature your company is, based on the recent results of the 2018 Wisconsin State of Owner Readiness Survey.
The survey, which was commissioned by the Wisconsin Chapter of the Exit Planning Institute and co-sponsored by Honkamp Krueger & Company and others, found that Wisconsin business owners:
- Don’t have a data-driven understanding of what their business is worth. Less than 15 percent of owners have had a formal business valuation performed for their company in the last two years.
- Have not undertaken an independent risk assessment of their business in terms of its transferability. Knowing you company-specific risk, that is the risks that threaten your company’s transferability, drives an understanding of how to actively and effectively grow business value.
- Need to integrate their company value into their estate plan. Only 34 percent of the owners surveyed indicated that they have a current written estate plan, of which only 35 percent had factored the sale of the business into that plan.
Clearly, the value of the company is not on the active radar of most business owners. Yet that value, and its transferability, may be at the very core of what they are pinning their retirement plans and wealth upon.
The owners in the survey are busy, intelligent, and successful entrepreneurs who have built very respectable businesses. They are steely eyed about seizing market opportunities and building their companies sales and profits, often unwittingly at the expense of the transferable value of the company. Too often, we meet with business owners who have left the value of the company to chance and set themselves up for surprise and disappointment when they go to sell it.
There are five stages of value maturity. Understanding and actively managing each of your company’s five stages is a best practice I encourage all business owners to adopt. The stages include:
Identify: Identify what you have through an independent set of eyes, including an actual assessment of those factors in your business that create or present risk and undermine its value and a third-party business valuation. Based on the results, prepare your plans.
Protect: Capitalize on what is learned in the Identify stage. Go to work on those factors creating or presenting risk to your company’s transferability. Always protect what you have before moving on to stage three.