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By now you should understand that the book value of any business, including yours, is based on the total Equity on the Balance Sheet. This is why it is so important for the bookkeeping to be so accurate. We need to know that we can rely on the numbers that result from the bookkeeping. Numbers like total Equity on the balance sheet.
Is the book value the only valuation of a company?
Absolutely not. If you decide to sell your company, the first thing you’ll want to do, is hire a business broker. That person’s job is to figure out the valuation of your company for the purpose of determining what the selling price of your business should be.
Short of selling your business,
you should have an idea of what you think your company is worth.
Better still, have a goal for this.
How much would you like your business to be worth after a year? Two years from now?
Let’s say you were going on the show Shark Tank? You would ask for a certain amount of money in exchange for a certain percentage of ownership. You may not realize it, but the second you ask for an amount, and definite it in terms of the percentage of your business that you’re willing to give up in exchange for that, you’ve just valued your business.
Once you establish an amount, and a percentage, that can easily be restated in terms of how much 100% of your business is worth. It’s actually simple math. Divide the amount by the percentage, and you’ve got your answer for what you think 100% is worth.
We’ll dig deeper into this in section 3, but I want to get you thinking about this while we go through section 2. Section 2 is all about the analytics – these are the benchmarks by which you can measure and set goals.
The better you get at improving these ratios in your business, the more valuable your business will become. That is a guarantee.