Part of a succession plan requires you to value the business.  This will be necessary whether you:

1. plan to do an estate freeze,
2. sell to your family members or the next generation or
3. sell to management or outside parties.  

The valuation of a business can be one metric that you may consider as a measure of your progress on your company’s succession plan.  In my view, you should consider re-valuing your business on a regular and continuing basis.  I have previously reviewed some technical considerations in valuing business, the link for which is below.

http://successinsuccession.wordpress.com/2011/03/17/valuing-the-business-a-reality-check/

As discussed in my prior blog, there are two variables (amongst many) that affect the valuation of a business:

EBITDA times   multiple

Generally you can improve the EBITDA by your operations, efficiencies and implementation of your operating strategies.  The multiple is often determined outside of your business by such factors as market rates of return, the desirability of your business sector, growth of your sector, public company multiples for comparable businesses.  Your focus therefore, as to what is in your control, should be:

1. to increase your company’s EBITDA to the greatest extent possible and ensure that it is sustainable

2. to try to position your business to be in the “highest” multiple comparable business.

You should then regularly revisit your valuation every 2-3 years to assess the success or improvement in your enterprise’s value.

This is but one of many benchmarks to assess your progress on the succession plan that you have developed.

Learn think apply!