What’s your Magic Number? (or How much is enough?)
You’re a business owner. As an owner, you have an asset, something you can, ultimately, sell.
But what’s the trigger for sale? At Exit Motivations, we examine many of the motivations for selling a business; one of the important ones is value – what is it worth and at what point will its value be optimised?
Of course, that might be a reasonably easy decision in the world of high finance, but for owner managers of the vast majority of the UK’s 5.5 million small businesses, it’s rarely as simple as that.
Many won’t even consider selling before they are ready to retire, enjoying the lifestyle of being the boss (or being afraid they are unemployable in the corporate world). Or they feel they need to pass it on to family.
And unlike the Dragon’s Den world of unrealistic valuations, back in the real world, many business owners are modest people, proud of what they have built but a little unsure of its actual value to anyone else. This is a very British trait, and it’s a bit like the thought of putting a much used and often much loved piece of furniture on ebay, you really haven’t much idea what it might be worth and you’re a bit scared that no-one will want it for more than a few quid.
But take another very British analogy, the housing market, and our obsession with the value of our homes, something lots of people like to keep a close eye on – and many have a ‘magic number’ in their heads which would prompt an evaluation of whether ‘right now’ is the best moment to sell, to down or upsize.
Strange then that so many business owners with an asset likely to be worth the same as or much more than their properties, don’t keep an eye on that value with regular appraisals. Fewer still have thought about what their ‘magic number’ is in terms of triggering a sale.
Are the UK’s small business owners fixated on what they’re making from their business month by month, year by year, or should their annual report and accounts include a valuation of the business and a discussion around what can improve that as well as the other metrics we live and die by?
The other half of the story is for business owners to understand their own ‘magic number’. How much is enough? What do they need your business to be worth to enjoy the retirement (even early retirement) they’d like, or to fund another, new business or project?
As always more questions than answers!