Why Your Company Needs A Yearly Physical
Most people get an annual physical exam at their doctor’s office just to make sure the body is in good shape. Further, most business owners thoroughly examine their investments at least once a year, sometimes more often. Unfortunately, many of those same people who are so diligent about their own physical health and that of their portfolios, neglect to also schedule an annual check-up for their company unless they are compelled to do so by something like Employ Stock Owner Plan (ESOP) regulations.
Every business needs a yearly valuation. The importance of getting an accurate company valuation cannot be over emphasized when approximately 65% of business owners don’t even know the true value of their business. Since most owners have approximately 75% of their net worth tied up in their business, the value of their business is important information to know for retirement savings, estate planning, and to have a solid exit strategy in place.
Knowing the True Current Value of Your Company
A yearly analysis is necessary to compare performance and profits on a year-to-year basis. Obviously, your value should be increasing, Therefore, it could be cause for alarm if it is going in the opposite direction. A yearly company physical will also help you see how they stack up against their peers and make immediate changes if you are falling short.
Course Correct Before it is Too Late
An annual company physical will hopefully reveal that everything is at optimum levels for the most part. But if a problem is discovered, it is easier to deal with it early rather than years later when the damage done might be irreversible.
Your business physical should be about more than just reviewing the numbers. For example, banking relationships and buy/sell agreements should also be reviewed to ensure they are still beneficial.
Former CEO of the Chrysler Corporation, Lee Ioccoca famously said, “Buy, sell or get out of the way.” The wisdom of his words when it comes to business still apply. If a company is at a standstill, it means that missed opportunities are likely. Every company should be performing at a high level should a merger or acquisition opportunity present itself.
Be Prepared for Opportunities
At any given moment, a prospective buyer could make an offer. The opportunity of a lifetime for a business owner may be squandered if he/she has no idea of the true value of the company, how it stacks up against its peers, and if the offer matches the value of the company. Time is of the essence when it comes to that kind of situation. By the time the critical information is gathered, the buyer will have most likely already moved on.
Just as you check the health of your own body and investments, the health of your company should be examined yearly. Whether or not you currently want to sell, merge, or have your business acquired should not keep you from having the necessary numbers about the company’s true value at the ready. There is no way to know if or when circumstances might change. But with a yearly company physical, a business owner is ready to seize any opportunity that comes along.
Steve Ford is Executive Vice President of Creative Business Services/CBS-Global.
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