July 8, 2011 by Mary Adams · Comments Off
Corporate valuation. It’s one of the two key metrics for a business owner. The first is cash flow/income in the short term. For some, that’s as far as they get. But, for the really successful ones, the second metric is how much cash they can realize upon exit from the business. My partner, Mike Oleksak, calls this “getting paid twice for the same effort.”
If you use both metrics, a private company can be a very exciting place to be. Because this perspective helps you balance short-term gains with sustainable value. It helps you think about how to build a business that will grow profitably and sustainably. (The lack of this kind of thinking is a huge problem for public companies today but that’s a topic for another day).
But the process of valuation is a mystery to many business owners. Even those that understand how it works, can’t always put their finger on why values end up the way that they do.
That’s because valuation is really a very subjective process. And it has gotten more subjective in the last thirty years as our economy has shifted from an industrial to a knowledge model.
Why? Read more