ValueBit - Valuation Equation
A simple formula for business value is V = I / R. V is value, I is income, and R is risk. A business buyer is, in essence, buying the future cash flow (income) which will be generated by the business they are buying. Income or cash flow is the net cash flow after expenses received by the owner(s) of the company. This is not to be confused with gross sales or revenues. Buyers want to minimize the risks to that future cash flow. The more you can increase income while, at the same time, decrease risk to that future cash flow the more you will increase your business’s value. Next month we will go into a little more detail defining types of cash flow.
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ValueBits are concise and we hope informative articles written by the partners of Delta Capital Group. We hope you find them of value!
