Why Your Company Needs a Physical
The chances are that most executives, including you, see a doctor to get a physical check-up about once a year. It would, therefore, make sense to assume that their businesses are treated with the same care. However, that is rarely the case. In reality, very few executives and business owners consider giving their companies an annual check-up, unless they are required to do so by relevant authorities.
Related to a company check-up is the knowledge acquired from consulting the results. A study of American businesses revealed that more than half of business owners don’t know what their company is worth; three-quarters of their net worth is tied up in the business and even greater proportion of them (85%) has no exit strategy in place.
There are many reasons why businesses should have their numbers and valuation checked on a yearly basis, with partnership issues, estate planning, buy/sell agreements being some of them. Knowing how much is the business worth at the end of each year is of a great importance – owners will be able to see the value and assess year to year growth. After all, the value should be increasing, not decreasing! Similarly, the overall business value can be compared to the worth of other businesses, allowing owners to see how they stack up against their competitors.
If all goes well, the check-up should not raise any red flags, however, if there is a genuine problem, being aware of it early on in the process is crucial. But it doesn’t have to be only about prevention. Being ready for an unknown opportunity in the future is equally important. A possible acquisitor may literally arrive at your doorstep out of nowhere and when that happens, knowing the current valuation may be as good as having money in the bank at that moment.