If Your Business Is Losing Money It’s Worth Less Than You Think

In a few words, the value of a business that demonstrates losses is arguably the liquidated value of the assets. Now, that is a tough standard, but it is what the official, generally accepted accounting procedures analysis states is appropriate, the right answer.

There is no goodwill if there is no profit. There is no multiplier if there is no profit. There is nothing to sell other than the assets and then at liquidated value, not even at fair market value. Harsh, but true. This is the bottom line and few understand this. Few accept this notion and many businesses are on the market with huge multipliers and unreasonable prices mostly because of the debt load being carried, but they will never sell at the asking price or even close to it as the business is only worth the liquidated value of its assets if it is losing money.

Some say “going concern” adds value, a turnkey operation, a cash flow machine in action, with clients and revenue… these are all valuable, making a business worth far more than the liquidated value of its assets. An arguable point, but not true if the business is demonstrating losses. You may wish it were otherwise and you may even find a buyer willing to pay more than the liquidated value of the assets––that is possible and happens every day. However, the evaluation remains the same even though someone may be willing to pay more because it is a going concern and may have more perceived value than the liquidated value of its assets. But really, it doesn’t. Sad, but true.