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September 4th, 2013

Knowing the true value of your business is priceless



Harry C. Alford

Do you know the true value of your business? I doubt it as 80% of all business owners do not know what their business is worth. This creates a lot of vulnerability. This type of knowledge has been an access issue due to the time it takes and the cost of traditional offline methods. The traditional way will cost on average $8,000 and takes about five weeks according to research firm IBISWorld. Realizing this hurdle for small businesses and especially Black owned firms, the National Black Chamber of Commerce conducted a search to find some type of alternative.

We have found it! There is a company called BizEquity that has patented the first and leading way for every business owner in America to receive a documented estimated value of their business worth online. Over the next ten years there will be over 7.7 million businesses changing ownership. In the past, many would sell "short" – meaning they sold their business below its true worth. Buyers would also buy a business for more than it is worth too many times. There is a need conduct the process just right so that both the seller and buyer receive a fair value for their precious money. No longer will Wall Street have a monopoly on this type of information when "Main Street" needs it the most. Today, BizEquity can do this for 1/25th of the average cost and in real time (Internet). Let’s look at some of the advantages of knowing exactly what your business is worth.

Once you know your true worth you can budget your costs and risks. A smart entrepreneur can assign so much of his/her total worth to savings to be used as a "rainy day" fund. He can devote so much credit against it. For instance, one might make it a standard to maximize outstanding credit to 20% of his total worth. Any more might get him in financial trouble when a recession comes or other unforeseen business crushers. I know a lending company that will loan no more than 1.8% of his company’s value to any one customer. So if his company is worth $10 million the maximum loan to any one customer would be $180 thousand. It spreads his risk.

Many victims of Hurricane Sandy learned a hard lesson. After the storm raced through the East Coast many business owners found that they were underinsured. Thus they have two disasters to deal with – their home, car and most of all, their livelihood. Knowing the true value of your business will make sure you are adequately insured. It will also save you money if your insurance agent tries to over insure your firm.

Having documentation on how much your business is worth can improve your negotiation when selling the business. This insures that you are going to get the maximum dollar on the sale. Being ill prepared can cost you millions of dollars and hurt you and your family’s future. It will also help your accountant when preparing IRS reports and audits. Your lawyer will also appreciate the information for any legal matters that may occur. It is very important if the owner dies unexpectedly, the heirs will be able to understand and document the value. We have had too many members who died and their heirs were unable to sell the business for a just price. This is so sad to see. Let me tell you a true story about one of my friends.

His city was going to allow one permit to build a medical waste facility (an environmental friendly incinerator to destroy the wastes). He recognized the value in this as he owned enough land to build such a facility and had the political connections to make it happen. He got the permit, built the facility and hired people who could operate it. The business started off with a "roar". He told me that his ultimate plan was to sell this "plum" to a Fortune 500 company and cash out in a lovely way. Before long several of the waste management giants were making overtures to him. He had a problem though. He never had a handle on the true worth of his company. Possessing the only permit in his metropolitan area made the company worth many of millions of dollars by itself. He never priced it. He decided on a buyer but there was a catch. The suitor didn’t want to buy it. It wanted to joint venture with him. He took the deal and waited for his revenue share. Boom! The partner shut the facility down forever and transferred all business to another facility out of state that they owned. All they wanted was to kill their new competition and they succeeded. My friend was devastated. He should have found the true value and sold it completely. Word to the wise!

Harry C. Alford is the co-founder, President and CEO of the National Black Chamber of Commerce.


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