Business owners should always have an exit or succession plan, no matter what stage of their business' lifecycle.

Entrepreneurs establish and grow their business for essentially one reason - reward.

That reward can come in many forms whether it be fulfilling a passion, gaining respect or recognition or achieving a lifestyle. One common trait through all business owners is that they want to build value.

We have seen many business plans, long or short, simple and sophisticated. However, a consistent fault with many is that they do not reference their actions or strategies against what impact these may have on the business value - short or long-term. When asked why, a typical response is that they do not know how to realistically value the business - hence, have no measurement tool.

At another level, we continually try to give the message to business owners that they should always have an exit or succession plan, no matter what stage of their business' lifecycle. Whether it be via family succession, management buy-out, trade sale or IPO, the plan for exit will or should largely drive the actions and strategies of the business to increase value.

So, what is a business worth? In very simple terms, it is the best price you can get at a given time. The price issue is long-standing. The seller wants to get as much as possible, the buyer wants to pay as little as possible, and the value lies somewhere in between. However, this is not always reasonable. For example, at a given time, there may be no buyers or investors that have expressed an interest. You should not therefore conclude that the business is worth nothing. So how can you arrive at a reasonable valuation, or if you are selling, a realistic asking price?

http://www.mondaq.com/australia/article.asp?articleid=68178