What is your company worth? If you were to close the doors today how much money would you have left? Do you track this number so you can manage it and help it grow? To find out the answers to these questions go to the company’s Balance Sheet.
One point of clarification about company worth. This is not what someone will pay you to buy the company; hopefully it will be considerably more. This is what you will be left with if you decide to close the doors. For more on the topic of selling your business pick up the book Built to Sell by John Warrillow.
The Balance Sheet tells you two important things:
- The value of all the assets
- The value of all the liabilities
Subtract liabilities from the assets and that is what the company is worth.
Assets consist of a number of things:
- Cash you get can get your hands on immediately (e.g. money in the bank)
- Money you expect to receive in the near future from clients (Receivables)
- Money you “might”get when you sell all the furniture and fixtures. Using furniture as an example. Your Balance Sheet shows the original amount paid for all the furniture, the depreciation (i.e. wear and tear) deducted from that leaving a balance that is an assumed value for the furniture.
This is everything the company owes and needs to be paid.
- Money you owe your suppliers (Payables)
- Money you owe the government (e.g. HST)
- Any outstanding debt the company might have
Even if you have no intention of closing the doors in your business (99% of us don’t) you should still be tracking the worth of the business. As mentioned in the first of this series we want our business to pay us a decent income AND to increase in value so one day we can sell it. So track the number on a quarterly or annual basis and if it is not increasing take action. If you are uncertain what action to take seek out an expert.
In the next blog of this series we will study one of the great mysteries of business. Where has all the money gone?
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