How Much Is Your Business Worth?

 

Discounted cash flow. Capitalization of income stream. Economic value of assets. Unless you have a strong financial background, the language of business valuation can sound like some obscure dialect. But there are good reasons to learn the basics. Knowing roughly what your business is worth can be helpful as well as interesting, particularly when you're talking to bankers or potential investors. And if you ever get the firm appraised, the experts you call in will give you better answers if you speak their language.

For our money, the best primer is Thomas Horn's Business Valuation-Manual: An Understandable, Step-by-Step Guide to Finding the Value of a Business. Published in 1985 by the author, it's an expanded version of an in-house guide he once wrote for the staff of his mergers-and-acquisitions firm. Horn walks you through the process of valuing a business: when to undertake the job, how precise you need to be, how to gather and prepare the data. A glossary and occasional cartoons demystify the subject without trivializing it.

Is the book oversimplified? There's no danger of that, according to Michael J. Roberts, an assistant professor at Harvard Business School. "Horn explains the most common approaches to valuation and how to perform those analyses," he says. "He also shows you how to adjust your financial statements accordingly." The book, Roberts adds, is useful even for company owners who have no intention of selling. "It can be very helpful to look at your business as a potential purchaser would. It can show you where the real sources of value are and where the real potential to improve is."

Business Valuation Manual is $29.95 plus $1 shipping from Charter Oak Press, P.O. Box 7783, Lancaster PA 17604.