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Do You Really Know What Your Business Is Worth?

Worth of your business

This is a strange concept, as the worth of really anything is purely subjective, to some extent.   It is simply a matter of what someone is willing to pay for a service or product, or alternatively, what someone is willing to sell that service or product for.   Yes, there are certain market values for things, and you are likely to pay a certain amount for products based on market values, but again, these things are not worth anything more then what someone is willing to pay for them.    However, a business is not like, say, gold, where the market price is apparent at all times (at least in the modern era).   A business isn’t something that is necessarily easily quantifiable, especially if it is a small start up business looking into its “exit strategy”.   Such companies are quite simply worth whatever someone will pay for them.  So then, how are you to know what your company’s value is?

Well, that depends on if anyone wants your company.  There are several show’s on television that feature wealthy venture capitalists interviewing (or being presented with) potential business opportunities.  Some of these companies/business ideas are excellent, are making money, are well organized businesses.  Yet, these wealthy venture capitalists will at times reject even business ideas that they like or appreciate, either based on perceived value or on perceived opportunity for growth based on investment.  “Perceived” is the most important word here.  These companies/business ideas can be excellent money makers, but can still be worthless to investor’s if they do not see the value in purchasing the company.  Some companies simply have a limited level of perceived worth.

Do you really know what your business is worth?  To be perfectly honest, you can never know with absolute certainty.  Here is a far out, but simple to understand example.  Let’s say you sell potatoes.  Lots of potatoes out there right now.  Your potatoes are going to be worth whatever someone is willing to sell them for.  The lowest price will likely determine their worth.  But what if there is a potato blight, and you have the only unaffected potatoes?  Well, suddenly YOU decide the worth.

If you own an internet start up company, well, what does your company do?  Is it the only one that does it?  Do you have a reputation?  Is the company worth something to someone else?  Or is it only worth the time and money you’ve put into it?

Nothing has intrinsic value, everything is subjective.  Your company may be worth a million dollars to another company that desperately needs to add whatever you bring to the table to their own company, but worthless to nearly everyone else.  Keep this in mind if you are seeking that exit strategy.  If you are lucky enough that people see value in your company, be thankful, nobody owes you anything for it.

When it comes to the financials of your business your accountant is going to be able to produce an accurate picture of what your company is worth based on its assets and liabilities.

 

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Sam Seidman, CPA, CA, LPA
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Toronto, Ontario
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Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

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