How do you value a business?

It’s an analytical process.  Everyone has a little bit of a different twist to it.  But first we take the company’s accounting financial statements and adjust them for the ownership benefits and costs to usually produce a better, more profitable picture.  Then we will apply that revised, recast income statement to the multiples that we think are appropriate for the business to derive a value.  In a financially constrained environment we’ll stress test that value to see what if financeable.  Because at the end of the day what matters is how much debt and how much equity can profitably be employed to buy this business. 

Watch the full interview on valuing your company.

Posted by Larry Rogers.

As of January 2009, many banks and non-bank lenders are caught in a ‘liquidity trap’ where they must fix their own balance sheets before they can resume lending to customers. Getting buyout financing is harder than ever and new loans are secured by both cash flow and hard assets. On Wall Street, there’s a big slowdown in mergers & acquisitions.

Wall Street’s train wreck is Main Street’s opportunity.  Smart business owners and their advisors will certainly use these changes to their advantage.  Here are some ideas for owners considering a capital transaction in 2009:

1. Cash is king. Instead of an illiquid investment in a private company, this is probably a good year to have cash.  Consider a buyout or recap if you have another use for money. There are many opportunities in financial investments and real estate, for example.
2. Debt is cheap. For borrowers that qualify, interest rates are as low as they have been in a lifetime.  If you have good credit and debt-free assets, consider recapitalizing with low-cost debt.  Ask for an estimate of your secured debt capacity. Read more »