Owning a business is a cornerstone of the American dream. Still, it comes with countless challenges: managing payroll, sales, key clients, accounts, HR, staying ahead of industry trends, warding off competition, and driving innovation.

Amid these tasks, one crucial aspect often gets neglected: accurate business valuation. Shockingly, 98% of business owners in the United States have no idea what their company is worth.

Consider the impact of not knowing your value when:

• Exiting the business, planned or unexpectedly
• Creating a retirement or succession plan
• Going through a divorce
• Facing a partner’s medical emergency
• Evaluating your capital structure
• Handling a partner buyout
• Identifying business risks and threats

Each of the above scenarios demands an accurate business valuation, saving you thousands, hundreds of thousands, or even millions of dollars.

Understanding your value isn’t just a financial formality—it can profoundly shape your company’s future. Here are two real-world examples highlighting the steep cost of ignorance.

Case Study 1: Grocery Store Chain

John and Mark, co-owners of a successful grocery store chain, valued their business at $5 million a decade ago. The company has since grown to ten stores, roughly worth $20 million. However, they didn’t update their valuation. When Mark suddenly passed away, the outdated buy-sell agreement left John with a $7.5 million shortfall, as the insurance only covered the old valuation.

Case Study 2: Food Manufacturing Business

Bob, a second-generation owner of a food manufacturing company, decided to retire. He received a $5 million offer for his business, which he was ready to accept. His advisor suggested a professional valuation, revealing the company’s worth at $7.2 million. Ultimately, Bob sold it for $6 million, securing an additional $1 million for his retirement.

Image by Rislonav via Pixabay