Under the Iceberg
Under the Iceberg is hosted by Alan Rhode, a seasoned Private Wealth Advisor and CEO of Modern Wealth. It is your go-to podcast for diving deep into the world of Financial Planning and Wealth Management for Entrepreneurship and Small Business Ownership.
Join us as we explore these crucial topics in a format that’s both educational and engaging, tailored for Entrepreneurs and Small Business Owners looking to navigate the complexities of modern finance.
Disclaimer: “Under the Iceberg” is for informational purposes only and should not be considered professional financial advice. Consult with a qualified professional before making any financial decisions.
Content is believed to be accurate as of the publication date; however, no warranty of accuracy is given. External links are provided for convenience, with no endorsement implied.
For inquiries or feedback, reach out to alan@modernwealthllc.com.
Under the Iceberg
What's Your Business Worth and Why Does It Matter
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In the podcast titled What's Your Business Worth and Why Does It Matter, host Alan Rhode shares:
- Four reasons why business owners neglect to get a business valuation
- Five benefits to getting a business valuation
- Four types of business valuations
- Thirteen key performance indicators to measure your business against
An investment in knowledge pays the best interest. This quote is from Ben Franklin, one of the Founding Fathers of the United States. 98% of small business owners don’t know what their business is worth.
Four Reasons Why Business Owners Neglect to Get a Business Valuation:
1.) Expensive – Depending on the size of the business and it’s annual revenue, a typical business valuation will cost a business owner an average of $8,000 to complete. Your valuation may be less expensive.
2.) Time Consuming – Traditional business valuations can take up to 4 weeks to complete. Your valuation has a much faster turn around.
3.) Complicated – In order to have a traditional business valuation performed, the business owner will need to gather tax forms, balance sheets and other financial documents and then review these items with a business valuation expert. The interview and fact finding process is lengthy and takes the business owner away from running their business. Your valuation process is fast, efficient, and collaborative.
4.) Not Now– Taking all of these objections into consideration, it’s no wonder that business owners wait until an event requires them to have a business valuation performed. Often times the life event is the MOST inconvenient time to have a valuation completed (ex. Lawsuit, divorce, retirement, downsizing, etc.). You are offering them a way to be prepared.
Five Benefits to Getting a Business Valuation:
1.) Worth – In many cases a business owner’s largest asset is their business. Without knowing the value of their business it is impossible to know a business owner’s true net worth.
2.) Protection – Ensuring proper protection starts with understanding a business’s value. Most business owners do not know what their business’s full worth, which means that they may be undervaluing what they can provide for their loved ones. Proper protection and risk planning can help their families remain financially secure if something were to happen.
3.) Plan Your Future –A business often drives the decisions made around retirement, retirement income, estate, and/or trust planning. Over valuing or undervaluing a business could set a business owner up for an unpleasant surprise in the future.
4.) Make Better Decisions – A business valuation is needed for any business owner making plans for the future of their business; whether it is building a proper succession plan, determining whether or not to sell or pass a business down to a future generation, or simply determining a growth strategy.
5.) Know Your Potential – the business valuation report draws on industry statistics to help business owners gain a deeper understanding of how their business is performing. Key Performance Indicators help bring deeper insight and uncover ways for the business owner to improve their business.
Four Types of Business Valuations:
1.) Equity Value – (One of the most common valuations sought after) – Includes Inventory/supplies, fixed assets and intangible assets, PLUS liquid financial assets LESS all liabilities. This value involves the full transfer of the legal entity including all account balances and current tax attributes. (The buyer is acquiring ALL of the assets and liabilities, on and off the balance sheet)
2.) Asset Sale Value – (One of the most common valuations sought after) – Includes ONLY inventory/supplies, fixed assets and all tangible assets. Excludes all liquid financial assets and all liabilities. Buyer operates from newly formed legal entity. (The seller keeps the cash and receivables but delivers the business free and clear of all debt)
3.) Enterprise Value – Enterprise Value is a reflection of the firm’s value as a functioning entity and it is helpful in that it facilitates the comparison of companies with varying levels of debt.
4.) Liquidation Value – Based on the assumption of insolvency and the immediate sale of all assets on the balance sheet coupled with the satisfaction of all debts. This figure does not include accounts receivable.
Thirteen Key Performance Indicators to Measure Your Business Against:
1.) Return on Equity
2.) Receivables (Conversion)
3.) Inventory Turnover
4.) Fixed Assets Turnover
5.) Debt-to-Equity
6.) Interest Coverage
7.) Cash-to-Debt
8.) Income-to-Revenue
9.) Cash Flow-to-Revenue
10.) Receivables-to-Income (Pre Tax)
11.) Inventory-to-Income (Pre Tax)
12.) Fixed Assets-to-Income (Pre Tax)
13.) Total Debt-to-Income (Pre Tax)
