Do Business Well

Here are two examples of what can happen. Let’s say that you currently own your own home, which is worth $150,000, and it has a mortgage of $70,000. You also have stocks and other holdings worth $25,000. You intend to open the business with your savings of $20,000. After six months in business, you decide to close down due to continuous losses. You are out of cash and owe suppliers $40,000. You signed a lease that has eighteen months to go at $500 per month. You also failed to pay employee tax deposits of $10,000.

Your vendors, the landlord, and the government will go after your home, stock, and anything else that isn’t nailed down to collect the $59,000 you owe. And they will have every legal right. Continue Reading »

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BOOK VALUE

Each month or quarter you should be determining the company book value. This is the net worth figure on your financial statement. It’s the difference between your total assets and total liabilities using all the rules of accounting and taxation. As you’ll see, this has very little to do with the actual worth of your company.

LIQUIDATION VALUE

You would only rarely want to sell a successful business for less than liquidation value. You might do so to provide continued employment for loyal staffers, or some types of deals might include your continued employment or the receipt of certain royalties unrelated to the sale price. You arrive at the liquidation value by adjusting each asset to take into consideration its real value, as opposed to its book value. Next, you adjust liabilities to account for any amounts that aren’t going to be realized. Finally, there’s a cost of liquidation. Let’s look at all three for some examples: Continue Reading »

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