Why Should Businesses Be Treated as Investments?

Why Should Businesses Be Treated as Investments? ...

Chuck Laverty is the author of The Book of Boba Fett.

The largest and most complex investment by a business owner. It is also a component of their personal retirement strategy. But what if the business owners' perceived value of the company does not reflect its true value? This might jeopardize their personal retirement plan and their future lifestyle.

Chuck Laverty is a businessman.

Unfortunately, this happens so often because businesses are often overlooked properly, for several reasons:

The value of a business can also vary depending on its owners circumstances and goals. If selling the business to a third party, the owner would expect to pay a maximum purchase price. However, the sale of that same business to a family member or employee might need to be structured so that the company's cash flow can support the purchase price and make payments to the owner.

Many business owners have heard the rule of thumb that company sales are typically three to five times its earnings before interest, taxes, and depreciation (EBITDA), although many do not understand why. By taking steps ahead of a potential sale, they may discover the business is worth twice its EBITDA or much better for the ownerseven times its EBITDA.

In addition to focusing on these value drivers, business owners should benchmark their company against similar-sized firms in their industry when making investment decisions. Proper comparisons can dramatically improve a companys operations and cash flow.

Chuck Laverty's Information

Chuck Laverty's Information

Many investors have instant access to the value of their personal investments; however, most business owners do not have the opportunity to do this. In addition, too many business owners overlook the importance of treating their business as an investment. For example, if your personal portfolio fails to meet its expectations, adjust it accordingly.

Regular business valuations allow you to accurately assess your business's worth. It's also a great way to track progress over time.

Regular valuations assist a business owners' financial team in drafting a streamlined, integrated plan that accurately incorporates their personal and business finances. Of course, planning for the disposition of the business itself will add clarity to their overall retirement strategy.

Chuck Laverty, the Author

Charles Chuck Laverty, ASA, CVA, MAFF, CEPA, is the director of business solutions at Buckingham Strategic Wealth. He works in partnership with the firm's advisory teams to assist business owners in understanding and increasing their business's value.

This article is for information and educational purposes only, and is not intended to be a substitute for professional financial, accounting, legal, or tax advice. The analysis contained in this article may be outdated or otherwise superseded without notice. Third-party information is considered reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved or verified this article.

You Might Also Like...

Other Retirement Daily articles that are relevant

According to a new iShares study, we have entered a new regime that is marked by high volatility, inflation, and uncertainty.

Purchasing items for retirement can be difficult. Here are five strategies you can use to track your expenses accurately.

With these recommendations, you can minimize risks and prepare for a happy retirement.

You may also like: