Recently I heard about a business up for sale. The business seems like a profitable business with a great potential for growth but the owner is leaving the country and would not want to entrust the business into the hands of anyone due to how dishonest people have become. Topic for another day. I asked the price of the business and I was surprised at the price mentioned. Then a question came to mind. How did he arrive at this figure for the business? How many business owners can tell the total worth of their business at any point in time without a sweat if they are asked?
We may all not be people who love mathematics or numbers but as an entrepreneur, you need to know your numbers, the worth of your business. You may have an employee who is trained or specialized in accounting, forecasting knowing and interpreting every business number of your organization but as the owner of a business, understanding these figures help in making decisions for the growth of your business. It also helps to keep some level of focus in building the business. Knowing the value of the business helps to keep you on your toes so to speak. Most importantly, you can explain to an investor where your business is headed using facts and figures at every given opportunity.
The numbers are basically the most essential figures to keep in mind about a business. Profits, sales, expenses, the ratios of these compared to each other and most importantly, the summary of all the financial activities carried out in the business over a certain period.
Businesses go through several stages from launching or startup all the way to decline or folding up. At these various stages, a lot of things happen in the business that determines its value. The value of a business also determines the stage it is operating in and the kind of investment and effort needed to continue in business. The importance of knowing the value of a business and especially understanding the numbers cannot be overemphasized.
Knowing a business’ value helps to develop accurate strategies for growth and profitability. It also gives a fair idea of what activities to focus on. Most business owners go to investors for partnerships but do not have an idea what they are offering the investor and how much change the investment they acquire will bring to their company. Although some people may have found their way around it, several others have plunged themselves into huge debts they cannot pay back because of overestimated figures.
Knowing the value of your business can save you a great deal of stress and help in making sound financial decisions. Watching a lot of TV programs where entrepreneurs go to pitch their businesses for funding pointed me to the fact that some business owners have numbers but do not understand them and therefore cannot explain their estimates to investors.
The imperative is now on business owners to begin to learn to understand their own business numbers. Even if it looks complex, getting an expert to calculate and help understand those numbers can help any business owner to know their business and make informed decisions based on them.