Hidden Business Risks: When Owners Rely on Guesswork Instead of Valuation

Most business owners can tell you last month’s revenue, this quarter’s sales pipeline, and the balance in their operating account. Ask them what their business is actually worth and the answer is usually a shrug or a guess.

Recent studies show that nearly 75 percent of small businesses are underinsured¹. The root cause is simple. Insurance policies are often tied to valuation. If a business owner is undervaluing their company or basing coverage on outdated assumptions, they are unintentionally taking on more risk than they realize.

At Summit Exit Planning, we help owners see the full picture. What they do not know can cost them everything.

Why Undervaluation Creates Real Exposure

Small businesses are the backbone of the economy, representing almost half of all private sector jobs and employing more than 56 million people across the United States². Yet if most are underinsured, we are looking at a massive wave of avoidable financial loss.

Imagine an owner who experiences a fire, lawsuit or data breach. They assume insurance will cover it. But when the settlement arrives, they find coverage was tied to an outdated or low valuation. The claim does not cover the real financial loss, leaving the owner personally responsible for the shortfall. Losses from major incidents can reach into the millions³. For a smaller company with tight margins, that gap is not just painful. It can close the doors entirely.

Many owners think they will deal with insurance when they exit. The reality is that risk does not wait for an exit plan.

Why Owners Overlook Proper Valuation

Most entrepreneurs do not ignore valuation out of neglect. They are overwhelmed. They are hiring, selling, managing cash flow, dealing with vendors, recruiting talent, and answering emails that never stop.

In that rush, it is easy to assume the valuation from five years ago or whatever the CPA mentioned during tax season is still accurate. But valuations move fast. Businesses evolve. New intellectual property is created. Revenue streams shift. Cyber risks rise. Replacement costs increase.

Without a current valuation, everything that depends on it is inaccurate. Insurance coverage. Estate planning. Buy sell agreements. Funding conversations. Even the owner’s personal wealth picture.

If you do not know the value of your business, you cannot protect it.

Where Advisors Add Real Value

Advisors are not just planners. They are protectors.

Your responsibility is not only guiding investments or building portfolios. It is ensuring that business owners protect their life’s work. A current valuation is a foundational part of that responsibility.

Leveraging tools allows advisors and owners to capture a real time valuation, including intellectual property and intangible assets. When owners understand what their business is worth today, they can:

• Align insurance coverage with actual exposure
• Make informed decisions around risk and liquidity
• Strengthen succession or exit strategies with real numbers
• Protect family wealth instead of leaving it to chance

A business owner who knows their valuation makes better decisions. An owner who does not is playing defense without a plan.

The Bottom Line

Underinsurance is often a symptom. The real issue is lack of clarity.

You can help solve that.

Encourage your business owner clients to get an updated valuation. Show them how the right numbers protect their business, their wealth, and their future exit.

At Summit Exit Planning, we believe clarity creates confidence. Confidence creates better decisions. And better decisions lead to stronger exits.

Secure a valuation snapshot in under two minutes and give your clients the peace of mind they deserve.

¹ Hiscox Underinsurance Report 2023
² The United States Bureau of Labor and Statistics
³ Insurance Information Institute