The value (price, if we’re selling) of a business is what a willing buyer and seller agree it to be. However, assuming both parties are informed and rational, the value of most small businesses is calculated by multiplying annual profit times a “multiple.” The multiple is a number that reflects buyer confidence and often falls between one and seven. So, for example, a business with annual profit of $100,000 at a multiple of two would be worth $200,000.
Read More“Are you sitting down?”
It was our new regional salesman, Frank, talking to a customer on the phone.
“I’ve got pricing for you, and I just want to be sure you’re sitting down when I tell you.”
I was in Georgia to find out why Frank was struggling, and it was apparent. The quote was for a small commercial job, but Frank thought $10,000 was a lot of money. It showed.
Read More“What would it take to double your profit?” I was talking to Brent, a contractor. We had rearranged his income statement, and his margins were visible for the first time.
“What do you mean?” he asked.
“I mean, based on last year, how much more would you have to sell to double your net profit?”
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