Quick Consultant: Business Valuations - The Sooner the Better!

Your wife just hired a 21-year-old pool boy even though the pool won’t be completed until next summer.

Your husband has suddenly taken a great interest in exercise and is taking Pilates classes five nights a week.

Your spouse recently traded in that expensive iPhone for a collection of $19.95 disposable cell phones.

You just discovered a large folder containing monthly bank statements from St. George’s Bank in the Cayman Islands.

While these scenarios are meant to poke fun at some of the more extreme signs of marital infidelity and a pending divorce, they also suggest something far more serious. It’s never too early to develop a method for valuing what, for many in this industry, is the single largest asset owned jointly with your spouse (or your partner)—your printing business.

Unfortunately, other than casual discussions with your brother-in-law who owns a pizza parlor or suggestions from your accountant about future tax planning, the subject of how to value your business and how much it might be worth rarely comes up in day-to-day conversations. Let’s face it, most of the time you’re too busy putting out fires!

Many printers don’t have the faintest idea of how much or how little their business is worth. In fact, there are days so bad that they would gladly pay someone to take it off their hands. On good days, of course, they think it is worth twice its annual sales.

Getting Your Finances in Order

Some days, all I have to do is look at all the colored folders sitting on my desk to get an idea for a column. Other days, I will be scanning news summaries from AOL or Yahoo and I will spot an article that suggests a future column. This month both of those events seemed to occur simultaneously. As it turned out, three of the six valuations sitting on my desk involve either a pending divorce or the break up of a long time partnership.

Then, just a couple of days ago, I was scanning the AOL News page when an article titled, “Heading for a Divorce? First, Get Your Finances in Order” caught my attention.

Both of those factors strongly suggest that the best time to prepare a valuation of your firm is when there is no apparent need to do so. On the other hand, the worst time to obtain a valuation is three months after you’ve been served with divorce papers or when you discover—not suspect—that your partner has been stealing from the firm.

Agreeing on a valuation method and then taking the time to value your own company is money and time well worth spending. It’s sort of like buying a $1 million term life policy on yourself, hoping that your beneficiary will never collect.

The AOL article noted the often quoted statistic that 40-50% of all marriages end in divorce. “Second and third marriages,” according to the article, “have an even worse track record—with more than 60% of those unions ending in a separation.”

With statistics like these, it doesn’t take a genius to suggest that some pre-planning just makes sense. I believe every couple and every partnership needs to agree on a specific method to be used for valuing the business, and this agreement needs to done early on. The last thing you want to do is find yourself being forced to value your firm for the first time with a pending divorce settlement or dissolution of a partnership staring you in the face.

A Funny Story

A few years ago, I took on a consulting assignment in the Northeast. The owner and his wife ran a quite successful business. She was the “doer” and he was the “thinker,” and it seemed to work out quite well for both. They were married for 25 years, a small record in many quarters.

A few months after the visit, my client told me he had adopted many of my suggestions and was now doing better then ever. At some point after my visit, possibly for self-gratification, he decided to obtain a valuation of his firm and he hired a local business appraiser. He sent me a copy.