When financial advisors evaluate a family business, most focus on its financial value. Its liquid assets, annual performance and impact on retirement savings are what most zero in on. But that’s not the full story of determining a family business’ worth, says Patrick Ring, president of Legacy Partners, a Baltimore-based investment management firm.
Many financial advisers’ core competencies don’t include business planning. As a result they view clients’ businesses as illiquid assets that provide regular cash flow. But I’ve also noticed that business owners tend to be so involved in running their business that they don’t think about an exit plan until it’s too late.
When thinking about any kind of investment, it is well to keep in mind the old adage, “There is a time to buy and a time to sell.” This is a perspective that is usually disregarded when business owners think about their single most significant investment: the family business. Before making your next major investment in the business, step back and consider whether it really makes sense. With that fresh $1 -or $1 million-that you invest today in working capital or fixed assets, you are, in effect, buying into a business again. The question is: “Is it worth the price?”
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