Value of our Business

Discussion in 'Lets talk Business!' started by Matt Wood, Nov 19, 2017.

  1. Matt Wood
    Matt Wood

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    Every year, I like to see what my business is worth to give me more goals on increasing that number every year. So here's the formula I use that I got from the teachers in our industry:

    Net before Taxes

    Plus

    Tax Free Perks

    Plus

    Charitable Donations

    Plus

    Adjusted Cash Flow

    Divided by

    Return on investment (.25-.50)

    Plus

    Fair market value of assets

    Equals

    Value of your business
  2. Matt Wood
    Matt Wood

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    The main question I have on this formula is why is the owner's adjusted cash flow used as a part of this formula? How does that play in what that number has to do in the buyer's decision to purchase your business? Why isn't the Gross income in this formula?

    Because, for example, my business: I am dumping a ton of cash in my business right now, buying new equipment, marketing, making my image more appealing to the eye. Which costs allot of money, therefore reducing my cash flow. But it's increasing my Gross income. When the business is sold, they won't be spending the gross income on the same things I'm spending it on, therefore changing the Cash Flow. So that shouldn't affect the value of the business. But on every formula I've been reading...that plays a big part in valuing the business.

    So can someone please enlighten me?
  3. Mark Saiger
    Mark Saiger

    Mr Happy!

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    @TomKing did a great write up on here once about business value.

    I will see if can find it and link
  4. Mark Saiger
    Mark Saiger

    Mr Happy!

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  5. Matt Wood
    Matt Wood

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    Good news is, I have a very good answer to his 1-8 questions, which draws me closer to the .25 in my ROI. Bad news is the last few questions are nothing to brag about, which keeps me below my formula of .33 on my ROI. I feel that since I'm still an owner/operator, and my average invoice isn't worth bragging, then the Return of investment is nowhere near the goal of being .25 . So that's why I calculated it at .33
    Mark Saiger likes this.

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