In the age of information we have access to so much data. The reason? We create A LOT of data points, and technology has made it easy to catalog and—for the most part— contextualize it for us in a way that matters. It’s information that we produce, some of it useful, some of it not so much. It can take on many forms, like:
- Our bank accounts
- Our investment portfolios
- Our weight on a scale (it’s true, stay with me)
Bank accounts and the associated statements that they generate are, in reality, a massive list of decisions we’ve made on a day-to-day basis. We can learn a lot from them—including some choices we may not be too proud of. Beyond a catalog of what’s happened and the decisions we’ve made, a bank statement rolls up into one big number that’s front and centre. This is the number that we really care about: our bank balance. We know what’s in there — and, while we might wish it was more, we’re at least aware of it. When that number grows or shrinks, our choices change. It’s a point of reference, a manifestation of all prior decisions that have either positive or negative consequences. Awareness of that number is power and drives future behavior that will also be cataloged.
Similarly, we often set investment goals. We want to have “x” amount of money saved by “y” date. We then keep an eye on how those investments are doing, and make semi-regular contributions to continue on our journey to that goal based on performance and cash availability. We make decisions that we can see (like contributions) and it all rolls up into a number that tells us how we’re doing relative to our goal. Our behaviors then change based on those outcomes as we track their progress.
Now, let’s get to the “weight analogy”.
Many people step on a scale every day. What does the scale tell us? When simplified, it’s really a manifestation of the decisions we’ve made prior to that very moment. Is the number on the scale the only number that matters? Absolutely not, but its movement can be an indicator (positive or negative) of some of the decisions that we’ve made in the past. We step on the scale to find out how we’re doing relative to a goal and — sometimes — change our habits based on that point of relativity and to help us achieve what’s important to us in terms of our health goals. Knowledge is power.
What does any of this have to do with business valuation? Similar to the examples above, business valuation is also based on a series of data points - and these are the result of the decisions and actions that a business has taken up to that point in time.
Business owners are making decisions every day, some of which are easy and positive, and others that are difficult and have a negative impact on the business. These decisions are generating a catalog of data: journal entries, bills, debits and credits, invoicing, etc. What we don’t know, however, is whether we’re creating any VALUE outside of these day-to-day activities.
Imagine you are a 35 year old who started giving their wealth advisor $750 a month with a goal of retiring at 65 with $3M, but never once checked on how your investment was doing. For some reason you also asked your wealth advisor not to call you and said “let’s just both assume it’s going to happen and not touch it, I’ll just make my contributions and you just keep assuming it’s working perfectly - I’ll call you when I’m 65.” You would never do that to your future personal value, so why do it to your future business value?
You are creating valuable data every day - so the answer to what your largest asset is worth is right in front of you. It's simply been cumbersome, time consuming, and expensive to find out the value that you’re building, but you deserve to know.
Step on the scale, follow along, and maximize your outcome. You’ve earned it.