Thursday, May 19, 2011

What is Your Business Worth

Do you know the value of your business? More importantly, do you know how to maximize its value?

Here is the bottom-line when it comes to caclulating the worth of almost any business--how much cash flow can your business generate in the future, and how much risk is associated with it's ability to generate that cash.

In my recent article on American Express OPEN Forum, I list the three main ways a business is valued. Interestingly, the two that are weighted much heavier than the third have to do with cash flow generation and an assignment of risk through a discount rate or a multiple (please read the article for more information on how discount rates and multiples work).

So, if cash flow and risk are the drivers for valuation, then the best way to maximize the worth of a business is to build it into an optimal cash flow machine with as little risk as possible associated with those cash flows. Based on your industry and business model, there is likely something you can be doing today to improve the value of your business.