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Q: Business Valuation - Does this tool allow one to assess a business such that you can derive at a offering price for a small business. For example, I am considering a business wherein the asking price is $150,000 and the cash flow is $80,000. The way I interpret your model, this business would have a negative value to me if I can make $80,000 on the outside.

A: Yes the Business Valuation Model was originally designed with small business in mind. If you can earn $80k without investing (risking) any capital then a business that only returns $80k but costs $150k is worthless to you because you are getting no return on your investment (you would be better of putting it in the bank). Having said that you need to look at the return over time ie the 3 year forecast. So input your forecast variables to gain some insight into what returns are possible from the business. If returns have the potential to double over the forecast period then it becomes a different story. The valuation developed by the model considers the 3 year returns when developing a valuation. Also if there is a lifestyle component in the business then possibly you are prepared to accept a lower return?

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