Most business owners invest a lot of time, effort and money into their commercial babies. Hoping that years, and in some cases decades, of hard work will mean that one day they will be able to sell and enjoy a comfortable retirement.
Unfortunately, there is a common misconception among business owners about the dollar value of their business. This stems from the unquantifiable emotional investment that is rarely reflected in the ventures dollar value.
Read More, for 3 main drivers and other factors that impact the value of an enterprise!
Experienced management is arguably the most important driver of business success. When valuing a enterprise, key person/personnel dependency can have a negative impact on the valuation, especially if such people do not intend to continue working in the organisation after the sale.
In other words, without you, your business may not be worth as much as you may like to think.
It is important to employ skilled people that show commitment and a strong desire to grow with the venture. Such individuals can be key to your business having a healthy valuation when you decide to say, “Goodbye tension, hello pension”.
FCF is calculated by adding ‘Sales/Services Income’ and any ‘Decreases in Capital Assets’, then minus ‘Operating Expenses’, ‘Taxes Paid’ and any ‘Increases in Capital Assets’. The income-based valuation method uses current and discounted future cash flows to value an organisation. In short, freeing up business cash flow will increase the ventures value.
When compared to large, medium-sized organisations, small organisations are perceived to be a riskier investment. This added risk attracts a higher level of discounting, which results in a smaller valuation.
Therefore, as an enterprise grows, the underlying investment risk reduces, which consequently increases the value by slightly more than some people may recognise.
Management, cash flow, and size are only a few factors that impact a business’ value. However, positively impacting these factors may be the answer for you to stop living at work and start working at living!
By Kris Williams, CA
If you are interested in seeing one of the above benefits or more, then take 5 minutes out of your day to contact us and talk to one of the Team at AS Partners today!
Contacts us for a complimentary review of your current business structure
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