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How Much Is My Business
Worth? Valuing your business is a critical measure of your progress from year to year. For most of us, our business is our biggest asset and its value affects not only our retirement and financial plans, but also our lifestyles. Placing a value on a closely held company is not a science but rather an art form. As professionals, we apply various techniques, formulas and judgment based on comparable purchases and sales to calculate a business's value on a case-by-case basis. However some generalizations can be made about all companies. Companies with positive cash flow and earnings are worth more, and their assets also command a higher value. Businesses with few customers or a decline in revenue and profit are discounted or reduced in value. Just like old homes, a well-maintained business is worth more than a home in disrepair. Here is a rule of thumb to measure your business's value: First, determine the operating (or goodwill) value of your business. To calculate the operating value, add earnings + interest + taxes + shareholder's salary + perks and multiply the total by 4 (a multiple of 5 or 6 may be appropriate if the aggregate of earnings plus shareholder's salary exceeds one million dollars). Next, determine the net asset value, which is defined as the company's assets at fair market value less its liabilities. Finally, goodwill value is added to net asset value to determine your company's total value. Are you happy with the result? How does it compare with last year? Is your business providing a return comparable to the stock market? To achieve a higher value in 2001, you need to improve earnings, which cannot be completely controlled, instead focus on items you can control. You can increase margin, you can increase customers, you can increase the number of transactions with customers and you can control the process of delivering your product or service to your customer. There is no better time than now (if you have not done this already) to analyze your 2000 results and plot a course to improve your company's value in 2001. |
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847.850.5270
847.850.5271 - fax |
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| Webmaster: Linda West | Home | Contact Us |
