w ut W.s, .LU Lco1UR BSINESSkl ç~ Determining the value of y U uiess Knowing the value* of your business is important for many reasons. You wil need to know its value to go into a partnership, to détermine the capital gains for tai purpoes or to seII part of the -operations. How do you value your business? There are numerous qualitative and quantitative considerations wbich can be reduced to a relatively simple formula to foIIow when valuing a business, says Colin London, a pýrt ner with Peat Mlarwick Torne in Toronto, who is Find out liow to niake your work p lace more accessible to the Deaf . erployee. Cali the Canadian Hearing Society at 416-964-9595, or write to us at: 271 Spadina Road, Toronto, Ontario M5R 2V3' involved with vahung about 40 rbusinesses a year.. In i moot profitable businësse , the ongoing earnings level should be divided by an appropriate rate of return. Thus if you ,think something like 10 per cent would be a good rate of return (about wbat you would get for a government bond) and you r earnings are $200,000, you divide $200,000 by 10 per cent. The value of this business would be in the neighborhood of $2 million. Realize, though, that running a business with the inherent risks associated with a changing marketplace, is different than the guaranteed returns from a bond. The factors you should itemize te get the valuation include the worth of the inventory you have on hand, the worth and age of your physical plant and real estate, the sort of contracta you bave, the health of your industry and its future potential and market conditions. The one thing you sbouldn't ignore is. the worth of the good will you've built up over the years. "Many businesses tend te focus on just the book value of the assets," says London, "but they don't aeknowledge the full value of that good will."' If wbat you're dealing with is not a capital intensive business, the book value of it may be low, but th~ earning potent*m very high. A~tenately there may be almoat i0 physical assts at all, with *m~s of the business value good '11l. Travel agenciesý, insuran e' brokerages 'and professi nal practices fit'into this categr . "If the value of a businesý like that is $1 million," says Lodndon, "it's not unusual to find that 90 per cent of that is good will." A very smail business with only a few employees, such as a garage,. which depends on the personality and aiflla of the owner - may be worth less, because unless there is a way te transfer the good will, earmngs may also not be transferrable. Says London: "If you have two businesses making $200,000 a year, once a service industry with a smail asst base and another a light manufacturing business, with, saY, $3 million in assets, in practice buyers would pay more for the, manufactuiing business because if things went bad the assets are there te fail back on.", Consequently the business value would likelY be lower for the service industry. Everything, of course, is related te the buyer's perception. "No one really knows how much bis or her business is worth until he or she seils it," explains London. "les like selling a bouse. You may have g couple ofc waII ivich you nothing to do witb havea th e s t u t u e whereas when somm<e else sees, themi, it raiwse uncertai«nty about the structure itasif." "You can't go wrong buying this business, it's a goid mine - i'd like to show YOD the books, but aur treëasurer is in Brazil!" FAT RHVI EW Best of Luck on Your First Summer Fest Family Law Shewan, Rapoport 101 Maîy St.W., 3rd floor Pearson Lanes, Whitby 668-1712 Good Luck t. FARVW LODGE On Your Upcoming S e r Fusil Summer Fest AUGUST 25,1990 lOam-4p ILODGcE. FAMILY TRUST. CORPORATION REALTOR', ~i i ~ ~ ...iL.. Vi~ i I ~ lL U~ IIIBest W ishes-to Fairview Lodge 31 iBROKST.N.,632 Du ndas St. VVu for a Successfiul "Summier Fest" A WHITBY Atvte fte icue AMPLE PARKING citesoth day nld- 413 Dundas StÉE., Whitby 666-3784 M IN 668-8865 i~Food Booths ~ Casino Tables Y WEHOPYOURUMMIR ~ rPetting Zooi' Clowns ~ Face Painting Bs ihs~ FESISARETSUCES! ~cChildrens Games ~ Craft Tables Your ec White Elephant Tables Cc'~ Free Entertainment ltAna ........................................................................U M M ER............FEST..........VALOE F S IV L From ail the staff at the -T -ýENJOY EVENZING Toronto Dominion Bank ~ GadensF MN NTjIIE~GA]RDENS 601 Dundas St. W.at Frances 106 Mary St. E. * Snioi'iates 'GvupDisoeunts 668-3831 666-3797 300 Taunton Rd- W., Whitby* 668-6606,VWieeorieake The Dfffereoee. Y1......f'-. 2 w.. . .t. . ..A.1.'e "".2. w 1k I L~4L~~iCARDINAL NANNIES& COPANIONS rNC Wishes You Success For Your Upcoming Sumnmer Fest .101 Mary St. W., 3rd floor, Pearson Lanes, Whitby,. 666-3351 î nrr:ie%-IAI (%-I=PI=Rmnmv cf 1 Inm