Ever wondered how your stake in your business is represented in your accounts?
The answer can be found at the bottom of your balance sheet. Simply put it is the value of your physical business assets less any liabilities; usually described as net assets.
But this is not the full story as there is a further intangible asset that is generally omitted from your accounts. It’s called goodwill. It is the extra value a buyer is willing to pay, over and above the net assets value of your business, for the rights to your customer lists and other non-physical assets that are generally left out of your accounts.
Ultimately, what you can sell a business for will be limited to what a buyer is willing to pay. But there is value in making a consistent estimate of what your business may be worth, especially if this exercise is undertaken annually, when your financial accounts are prepared.
In this way you will be able to see if the valuation is increasing or decreasing, and if increasing, is the increase at a sufficient rate to meet your planned future exit from your business?
Hopefully, many of you will already be monitoring your business value in this way, if not, please get in touch so we can figure out the best way to add this important indicator to your final accounts each year.
