MichaelRoss
August 26, 2007, 01:13 AM
Glenn,
Thanks for telling us what you're interested in.
Unless I am mistaken, the Program # 2 Joe is talking about is just "Business Valuation Software". And no software can tell you what you will Actually Get for a business when it is sold as the Final Sale Price is a matter of negotiation and Other Factors, as I am sure you are aware of.
The Value of a business can vary depending on Which Valuation Method you chose to use. Be it a simple Assets minus Liabilities value, an Income Value, Goodwill Value and so on and so forth. And any software that determines the value will use one of those methods or a combination of them which is then averaged out.
And in the end, a business is worth what the market will pay for it, and nothing more.
Let me give you an example...
Imagine a Post Office Box which receives Checks and Money Orders for Paper Products. This Box receives $50,000 in money a year ($1,000 a week) which represents 1,000 sales of $50 per sale (20 sales per week).
Each sale costs $1 to fulfill. And yearly Box rental is $100.
The business spends $100 a month on advertising - $1,200 a year.
Total outgoings for the business are thus $100 box rental plus $1,000 product fulfillment costs plus $1,200 in marketing for a total of $2,300 dollars in outgoings.
Thus the Profit is $50,000 - $2,300 = $47,700.
How much is this business worth?
Assets? An old 486 computer which the master Document was originally made and which now holds the customer list. All printing of the product is outsourced and the print Shop has the file to do it all. The Computer has Zero value in today's market.
Unless the company markets to the list, the list has zero value as they only sell one product.
If they have a website it has a Cost. Maybe $500. Maybe $1,000. And the product sells itself because it's what people want so no Fictitious expense for Copywriting.
So asset value is $1,000 for the website.
Liabilities. Box rental of $100.
Assets - liabilities = $1,000 - $100 - $900.
So this method suggests the business is worth $900.
But people buy the income and so we see the income is $47,700. Thus, the business is only worth the income... $47,700. Or "Rule of thumb" says 2 year's worth so that makes the business worth $95,400.
BUT, no-one will pay 2 years worth of income for a Greasy Takeaway. As some make $3,000 per week that'd be $300k for one. They tend to sell for "Rule of thumb" of 10 times weekly takings - in this example $30,000 - and in our PO Box Business example 10 x $1,000 = $10,000 value.
However, to make $47,700 with so little work, would take the equal of $470,000 sitting in the bank at 10%. So it is WORTH $470k, as it would take $470k in the bank at 10% to make the same Effortless $47k.
So, depending on Which Valuation Method you use, you will get a value of...
$900, (Assets minus Liabilities)
$10,000 (10 times weekly take)
$47,700 (Yearly income minus yearly expenses)
$95,400 (2 times yearly net)
$477,000 (amount required to have invested at 10% in a bank to earn the same money)
$126,200 (the average of all valuations above)
Will someone pay any one of those? More? less? What would YOU pay for the PO Box business exampled here? Ah... if we could only know That answer. An answer no software can give you.
Michael Ross
Thanks for telling us what you're interested in.
Unless I am mistaken, the Program # 2 Joe is talking about is just "Business Valuation Software". And no software can tell you what you will Actually Get for a business when it is sold as the Final Sale Price is a matter of negotiation and Other Factors, as I am sure you are aware of.
The Value of a business can vary depending on Which Valuation Method you chose to use. Be it a simple Assets minus Liabilities value, an Income Value, Goodwill Value and so on and so forth. And any software that determines the value will use one of those methods or a combination of them which is then averaged out.
And in the end, a business is worth what the market will pay for it, and nothing more.
Let me give you an example...
Imagine a Post Office Box which receives Checks and Money Orders for Paper Products. This Box receives $50,000 in money a year ($1,000 a week) which represents 1,000 sales of $50 per sale (20 sales per week).
Each sale costs $1 to fulfill. And yearly Box rental is $100.
The business spends $100 a month on advertising - $1,200 a year.
Total outgoings for the business are thus $100 box rental plus $1,000 product fulfillment costs plus $1,200 in marketing for a total of $2,300 dollars in outgoings.
Thus the Profit is $50,000 - $2,300 = $47,700.
How much is this business worth?
Assets? An old 486 computer which the master Document was originally made and which now holds the customer list. All printing of the product is outsourced and the print Shop has the file to do it all. The Computer has Zero value in today's market.
Unless the company markets to the list, the list has zero value as they only sell one product.
If they have a website it has a Cost. Maybe $500. Maybe $1,000. And the product sells itself because it's what people want so no Fictitious expense for Copywriting.
So asset value is $1,000 for the website.
Liabilities. Box rental of $100.
Assets - liabilities = $1,000 - $100 - $900.
So this method suggests the business is worth $900.
But people buy the income and so we see the income is $47,700. Thus, the business is only worth the income... $47,700. Or "Rule of thumb" says 2 year's worth so that makes the business worth $95,400.
BUT, no-one will pay 2 years worth of income for a Greasy Takeaway. As some make $3,000 per week that'd be $300k for one. They tend to sell for "Rule of thumb" of 10 times weekly takings - in this example $30,000 - and in our PO Box Business example 10 x $1,000 = $10,000 value.
However, to make $47,700 with so little work, would take the equal of $470,000 sitting in the bank at 10%. So it is WORTH $470k, as it would take $470k in the bank at 10% to make the same Effortless $47k.
So, depending on Which Valuation Method you use, you will get a value of...
$900, (Assets minus Liabilities)
$10,000 (10 times weekly take)
$47,700 (Yearly income minus yearly expenses)
$95,400 (2 times yearly net)
$477,000 (amount required to have invested at 10% in a bank to earn the same money)
$126,200 (the average of all valuations above)
Will someone pay any one of those? More? less? What would YOU pay for the PO Box business exampled here? Ah... if we could only know That answer. An answer no software can give you.
Michael Ross
