This article are provided for information purposes only, and are not intended as legal advice.


Is your business worth as much when the owner dies?

October 19th, 2009

What happens if the owner of the business dies prematurely, is the business worth the same or did the value of the business just decline?   Does the estate have to sell the business immediately or can it run without the owner? 

 

 How important is the owner to the business.  It also depends on the type of business that you own.  If you own a consulting business and you have no other staff, when the owner dies, there may not be much value left in the business unless you are able to sell the customer list and the customers go to the new consultant.  If you own a retail store, the clients may come to the store for the products therefore the passing of the owner may or may not affect the sales of the business.  If the business is larger and has staff or products which can continue the sales of the business, the business may continue to succeed even though the owner is not longer involved.

 

I know of a business which sells products.  The owner passed away two years later and every once in a while a customer asks to speak to the owner who passed away.  If it takes two years before they need to speak to the owner, it shows that the sales have not been impacted by the death of the owner.

 

In an organization involved in R&D, if the owner if the visionary, then his/her passing away will certainly have an impact on the value of the company.

 

In summary,  the death of an owner may or may not impact the business, it is dependent upon what did the owner does in the business and did he have direct contact with customers or was he the administrator only.  If the owner was behind the scenes, then the business should be worth the same as before he died.  If the death of the owner impacts current or future sales or has an impact on the future direction of the business, then it could have an impact. 

 

Steve Jobs is very closely aligned with the success of Apple and the stock of Apple dropped when he took a medical leave of absence.  Even though Apple is a very large company with many excellent employees, Steve Jobs was closely aligned with the creativity of the products development and the value of the business declined significantly when the public markets thoughts that he may not return to the business.


Filed under: valuation of a business — Gary Landa @ 10:49 am


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