What is My Business Worth?

Small business owners all over the world usually fail to stop and ask themselves just what their business is worth until they are attempting to sell their business or preparing for retirement. However, gaining early perspective concerning the worth of your business from a third party can greatly benefit the future of your business goals and overall direction. If you are at the point of selling your business or planning for retirement, succession, or divorce, this simple question has no simple answer. Depending on what value is being calculated, a third party could conclude on a much different price when assessing fair market value versus another calculation like most probable selling price.

For the sake of simplification, only the most probable selling price method will be discussed here. Since you are probably hoping to determine the value of your company so you can sell it or pass it on to an heir, this is the method that will be determined. Three approaches can be taken, including market, income and asset approaches. Market approach is when your business is compared to similar businesses that sell the same goods or services and how much they were sold for. This cannot be the only approach however, as comparing businesses in different states that are different sizes from one another can throw off findings.

Income approach calculates how much money your business is generating for you on a yearly basis and determining a reasonable price it could be sold at. Since small businesses are a risk and not guaranteed to generate income, an accommodation must be made for the risk factor. Cash flow is identified through a process known as recasting which involves dissecting tax returns and determining how much money actually benefited the business owner. By following trends of past years, you can calculate estimated future returns the business will make for the new owner.

The final approach is called asset approach. Also known as cost approach, this method deals with physical assets but does not provide much value for goodwill. Many businesses place a good amount of emphasis on goodwill, meaning this would not be the best approach. However, if your business has a number of investments in outside sources, this could be a very beneficial method of determining how much your business is worth. As you prepare to put your business up for sale, understand that negotiations will undoubtedly occur and the market will be the ultimate determining factor of what you can sell your business for.

What’s My Business Worth?

Frequently, small business owners don’t stop to think about what their companies or operations are worth in value until they either get to the point of retiring and/or they have to give the business to someone else. Yet having a good perspective of what your business is worth via third party evaluation even years before the big ending, can be invaluable to helping set future direction.

A regular update of your business value in terms of fair market is critical to have in your back pocket as a business owner. Not everyone goes out in the market intending to sell their business every day, but that doesn’t stop businesses from being approached out of the blue when they are perceived as successful by bigger players. This situation is especially common in today’s tech markets. Then, of course, the question is how to respond to the offer? How about if an investor wants to get in on the action? What’s a fair value of ownership in trade for investment?

The BBC America cable channel has a wonderful show on each week named Dragon’s Den. The concept is that people who are looking for investors get a 15 minute pitch to four or five venture capitalists to sell their idea. Invariably, the VCs if they like the product offer investment for an ownership stake. The VCs have a very good idea what is a deal to them and what constitutes a waste of time. And, frequently, the people making the product pitch have no idea what their product is really worth in business terms. That’s when the VCs walk away with a 40% ownership stake for pennies. This type of poor selling is what is referred to as the down side of being in the dark, or just having just a rough idea of your business value. If you have no clue what your company is worth, you don’t have any context for making a decision.

An investor offering $1 million dollars into a growing company worth $2 million is a 50% partner. However, if the business is only worth $1.5 million then that same investor arguably gets majority control of the company just based on the numbers. That’s likely not the original intent when seeking to take on a funding partner.

On the flip side, using a company worth $1 million with no greater than 20% ownership available to an investor, only $200,000 can be targeted for growth. It might be better to take a small business loan instead and have 100% control of ownership. With no other debt, the bank would calculate a 20% loan-to-value ratio, which is very palatable to a lender.

Clearly, the above examples offer two very different strategy directions that become apparent when an accurate valuation is performed. And it’s common for many business owners going through a business valuation for the first time to go through a rough surprise versus their expectations. Much of the difference has to do with the owner’s perceived value versus what the accounting books represent. The reaction that their hard-earned work and sweat has no mathematical value is a hard pill to swallow. That’s because the energy and time involved in owning, managing, and expanding a business does not represent a usable factor in valuation. Instead, the defining factor is how much the business can produce in sales in the future.

External factors like the economy, both local and national, can sway worth projections as well. Management experience and skill are a measurable determination. The industry health the business operations in has an impact. A poor valuation may have nothing to do with the business measured internally and everything to do with outside forces.

Additionally, the frequency of valuations can have an impact on their credibility. A value-estimation should be performed when changes that impact the business occur or are expected. This can include shifts in technology, competition, the general economy/market or all of those combined.

Since business valuations are not cheap, the implementation of one should be used when it provides the most worth to the owner in terms of usable information. Otherwise, a regular valuation review every three or four years is a reasonable rule of thumb, especially in a well-established industry.

Closely held companies must have an independent valuation of their securities and assets for ensuring the successful acquisition of a business. Look for a professional corporation focused on business valuation, litigation support and valuation advisory services. You need a company with proper knowledge, experience and expertise to understand and determine the value of a company. A good company will have strong analytical and research techniques to accurately and independently determine value in today’s demanding marketplace.

Is Building a Network Marketing Business Worth It?

If you are not sure whether starting and building your own network marketing business is worth it, let me ask you this. Do you know how much it costs to start a regular business or franchise and how much the expenses are every month for these people? Let alone all the paperwork that needs be filed for the state, the employee insurances and taxes, etc.

If you want to learn about the costs involved in starting a franchise, you have to consider the franchise fee which is normally around $20,000, plus legal fees, build-out costs, inventory, supplies and your working capital, or the day-by-day cash that you will need on hand to run your business. As far as starting your own business, I can tell you from watching my husband closely who started his own business a couple of years ago that the start-up prices are quite high as are the monthly expenses, the paperwork is at times overwhelming, and if he doesn’t work, he doesn’t get paid.

However, one good thing these three ways of doing business have in common is that you get a tax-break. The government rewards those who decide to start their own small business and gives them many tax-breaks, whether they work from home, or they work from some type of locale or business building. However, many businesses that are self-started or franchised are noted to fail within a few years because the expenses are so overwhelming and they don’t find it worth the effort. However, those who see the value of building a network marketing style of business succeed.

Let’s look at some of the positive things Network Marketing offers us which is the reason motivated entrepreneurs succeed in this type of business. First of all, when you build your home-based business network marketing style, the start-up cost is very low compared to the other two ways aforementioned. The cost is normally between 40 and 200 dollars. The monthly expenses are low as well and normally are just to maintain the websites and back-office the company we partner with offers us, which have a ton of tools and training for us. A serious builder will also get business cards made up and get some DVDs and brochures that the company offers for their success, since we all may not be experts at the company or products, “but everyone can be an absolute master at using tools”, as Robert Butwin states in his book Street Smart Networking. There is no paperwork to be filed with the state, the shipping and handling services are handled by the company we partner with, and normally there is no inventory that we need to keep in our home. In addition to this, we can build our business as we go about our daily lives – continuing the job we already have whether it be stay-at-home parent, secretary, doctor, nurse, personal trainer, banker, etc. No matter what your occupation is, or what degree you may have gotten in school, or what gender and race you are, you can build your own business without tremendous risk and without having to take out a big loan or cash in all your savings.

Now let’s look at some of the frustrations we need to face at network marketers. The market has gotten a bad rep over the years because of all the people that simply signed up to get rich quick but were not really motivated and therefore quit before they experienced any real success. In addition, many people think that just the people on the top get rich, but those who sign up later will never make as much. Let me ask you this: when was the last time you noticed that the owners of a regular company – the company you currently work with or have worked with in the past – are those that make the most money, whereas the employees, you included, are simply getting paid a small paycheck, without any tax breaks?

Other frustrations may include telling people about the business (especially friends and family), approaching strangers about the products or business opportunity, not seeing quick results, and not knowing exactly what to do to make your business grow. Let’s approach each of these frustrations individually since they are all valid. First of all, if you have your own business, no matter what type it is, you NEED to tell others about your business. If you have started your own business non-network-marketing-style, who would you tell first? Strangers or your family and friends? I’m sure the answer would be a resounding family and friends. Well, approach your NWM business in the same way; you don’t want your family and friends to find out LATER that you have a business, so you? No… you want their support right off hand. Let them know your store is simply online, not offline, like many other companies have (which also have retail stores in your area). Secondly, we have approaching strangers, so let me ask you this: Do you have thousands of family members and friends that you don’t need to tell anyone else about your business and the products you offer? You believe the products are excellent and that is why you offer them, right? So tell others about them. If you don’t tell others, if you don’t advertise with whatever method you want, you will not be getting any business. You can’t just expect people to come knocking at your door or calling you if you don’t tell them you offer something, can you? As far as not seeing quick results goes, let me assure you that those who start their own business traditional style do not usually get quick results either, and yet their expenses keep piling up. And as far as not knowing exactly what to do to make your business succeed, I encourage you to simply look at and follow the roadmap that people that are in a rank above you have followed and succeeded. These people, and even the company itself, have taken the time to put together a roadmap, so all we need to do is follow it; it’s as simple as that. When you start your own business traditional style, there truly is no real roadmap to follow; you simply have to get out there and tell people about your business and talk to other entrepreneurs who have successful businesses of their own to see what they have done.

So, to answer the question “Is building a network marketing worth all the frustrations”, I would say it is, but you need to answer that question for yourself after reading this article in which I have written the positive things to consider, as well as addressed the frustrations that most people face. What do you think? Would you invest your time and effort in building a network marketing business yourself? Why or why not?