Items selected where Question includes Investment or Answer includes Investment
Questions & Answers
Q: What is Investment Analysis Software...and what are the examples?
A: Full details and examples of operation are available at https://bizpep.com/uinvest.html .
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?
Q: I am using your Excel Valuation sheet for an investment presentation for my company. Please can you tell me is it possible to change some of the headings etc as they don't quite match mine?
A: You can adjust any labels that are in blue cells and the changes will be carried throughout the model. All other headings etc remain protected and are unable to be changed in the standard Non-Commercial registered software. If you purchase a Commercial license we can upon request provide access to an unprotected version of the Business Valuation Model in which you can adjust labels (however this should be undertaken with care to ensure you maintain the validity of the formula). You can upgrade to a Commercial License at https://bizpep.com/upgrade.html .
Q: My question is on the inputs page. The space for owner labor in my case is $35,000. The outside earnings box seems to ask for total outside earnings being given up without regard to the owner labor amount I plan on paying myself once cash flow allows (the 35k entered in cells C19 and C28). My outside earnings would only total about $60,000. When I enter 60k into cell c64, the valuation is a negative number. When I enter 25k in cell c64 (60k-35k) I get a positive value of the business. The cash flow projection allows me to pay myself partial salary the first year and full salary the second. So it seems to me that the 25k--which is all I'm giving up of outside pay is the number to enter as owner's external earning power (cell c64). Am I understanding it correctly? Thank you for your help. I'm helping a friend on his purchased model, but as a financial adviser, intend to purchase the commercial license on my very next business client.
A: The Owners External Earning Power (C54) is the amount of earnings given up when the owner commits to the business. If you could earn 60k outside the business then before the business can start providing a return on investment it must give you a return of 60k. Anything above will be a return on investment. The contribution you (the owner) make to the business in labor is included as the Owner Labor in the Variable and Fixed Costs. This is the cost of basically paying someone else to do what you do in the business. The actual amount you pay yourself does not really matter as any profit is the owners. So when we look at the Results page we see the Operating Surplus (which is the surplus available from the business without the contribution of the owner), and the Owner Cash Flow which is the Operating Surplus plus the value of labor provided by the owner. To determine the return on investment we then deduct the amount the owner gave up to wok in the business and deduct an allowance for depreciation leaving the Business Return. Which is the amount the business investment really provided for the owner. I hope this makes sense, if not let me know.
Q: I am trying to use this tool for a retail business that has inventory. My questions concern accounting for inventory value as an asset (not to be depreciated) and 'cost of goods' an an adjustment to sales.
A: For non-depreciating items you can handle them as a component of the Other Investment (operating capital). This value is actually adjusted by the Valuation (depending on the return you set). Considering the Inventory when you generate a valuation the Other Investment value should cover the the cost of inventory (stock on hand). If there was no other investment component to consider then the Other Investment would consist of Inventory plus Goodwill. If the Other Investment is less than the inventory then the required return is not achieved.