According to Tim McDaniel of Rea & Associates, many business owners spend more time working with an investment advisor trying to grow their 401(k) retirement account than they do working on growing their business, even though 50 percent to 80 percent of an owner’s net worth is in the business.
For business owners to treat their business like an investment, they should do the following, according to McDaniel:
1. Have a goal. Business owners should understand the need to improve the health of their business.
2. Know the value. Business owners should know the current value of their business and understand it.
3. Get a plan to grow the value. Owners should have annual valuations and meet quarterly reviews to look closely at growing cash flow, reducing business risk or increasing the compound annual growth rate.
4. Realize the value. Sometimes, the process of boosting the value of the business makes running it more enjoyable.
From CPA Practice Advisor, 3/21/16, Mary Ellen Biery: http://www.cpapracticeadvisor.com/news/12184542/valuation-teach-clients-to-treat-their-businesses-as-an-investment
For more on business valuating see: “How to Value Your Business in Six Steps”.
Davis & Hodgdon Associates CPAs is a full-service public accounting firm with offices in Williston and Rutland Vermont. The firm is a member of Vermont Businesses for Social Responsibility (VBSR), Vermont Business Environmental Partnership (VBEP), Lake Champlain Regional Chamber of Commerce (LCRCC), Vermont Chamber of Commerce, and Women Business Owners Network (WBON). The firm serves its clients by providing progressive, proactive services through expert staff, sophisticated technology, and unparalleled efficiency. For more information please call 802.878.1963 (Williston) or 802.775.7132 (Rutland) or email [email protected].