What is the value of your Business?

Valuing a Business
A business is worth whatever someone else is prepared to pay for it and therefore its value will vary from person to person. There are many ways to value a business and the final price will differ, depending on the method used.

When the business is for sale, the price the seller wants is usually never the price received. This is because the seller's perception of the value is usually much higher than the buyer's. The final price is usually in between because the buyer and seller will negotiate an agreed figure.

Obtain Professional Help
When purchasing a business, obtain professional advice regarding the valuation. You need to be happy that you are not paying more than what you believe it is worth. If you pay too much and encounter financial problems later on, your capital reserves will diminish very quickly, because the business will not perform to the level indicated by the seller.

In general, a business should be valued against the ability it has for making profits. Other factors, such as the ability to generate good cash flows, or the consistency of profits, or a potential for growth and the lack of competitors, will have an effect on the price.

Because each business is unique, it is important to use the most appropriate valuation method that does justice to the particular business and it's potential.

Always Use the Financial Accounts sent to the Tax Department
When looking at financial statements, it is preferable to assess the financial accounts attached to the income tax returns filed with the Tax Department. The reason is that these accounts should be accurate if not lower than what the real profit could actually be. No one sends to the Tax Department financial accounts that show a higher than necessary net profit. The figure to the tax man should be the lowest of all legally possible. If you base your calculations on the Tax Department figures you can never go wrong.

" If you base your calculations on the tax department you can never go wrong ..."

Many owners come out at this stage and tell you things such as “the tax accounts are lower than the true figures” or “ we made adjustments to the real profit before sending accounts to the Tax Department so work on our higher figures” etc.

What do you say to them - “Too Bad chum - we can only go on the correct Tax Department financial accounts because we can rely on their accuracy.

If business owners are prepared to “diddle the tax man” they'll have no qualms about "diddling" you.

Tell him/ her that it's the price for being dishonest.