Don't let confusing formulas get you down

Business valuation formulas are simple, and it is easy to plug numbers into them. So then, why so much confusion about them, what they are, and how to use them?


It's easy to look up a particular line from financial statements and plug it into the formula.


The other variable to be dropped into the formula is the confusing secret source of getting an acceptable answer on the other side of the "=" sign.


Be it a multiplier or a discount, the valuer must apply constraints of the situation and application.


Abuse of formula

The simple nature of business valuation formulas makes them a blunt instrument for forcing a price in a transaction.


In the free booklet available here, I argue that what everyone refers to as "business valuation" is in fact "business pricing". 


In 30 years of business sales negotiations, I have seen arguments reduced to: 


"We always pay between 3 and 4 times

against:

"But I want 6 times". 


It happens all the time. But I have also heard so many times:

"Tell them I don't want their '3 times', and suggest '6 times', and perhaps they'll come back with 4 times."

That's not business valuation. It's negotiating a price.


It's also a very poor negotiation. But that's another story.


But here's the thing: if you're buying or selling a business for the first time, or even a 2nd or 3rd time, you will probably be up against someone who has done it more times than you.

And that means that they will likely use the formulas to schmokkel your brain!


Is it a crime? No, of course not. It's not even dishonest. 

But it is an abuse of formula. 

 

Understand the business valuation formulas!

If you don't understand the ins and outs of the formulas which will be used to negotiate the price you receive or the price you pay, you will be abused:

  •   the multiples
  •   the discounts
  •   the balance sheet items
  •   the income statement line items
  •   the applications in circumstances
  •   the parameters for industries
  •   the limitations in use

You need this free booklet which explains how a bunch of different "business valuation formulas" work. The book explains when a formula is a tool for pricing a business, or an actual business valuation formula.

Get your free copy of Business Value Formulas straight to your inbox

Business valuation formulas
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