Abrams - How to Value Your Business and Increase Its Potential

JAY B. ABRAMS, ASA, CPA, MBA

To my parents, my wife, and my children, who have supported me, believe in me, and root for me.

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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PART ONE
BUSINESS VALUATION

PART TWO
THE SALE AND FINANCING OF A BUSINESS

Jim Levy

Michael Keane

Bruce Taragin

David C. Boatwright

Howard A. Lewis

I want to express my most profound appreciation to my parents, as their unceasing support above and beyond the parental call of duty brings me to tears. I am grateful to my father, Leonard Abrams, who taught me how to write, and to my mother, Marilyn Abrams, who taught me mathematics. I express my deep gratitude to my wife, Cindy, who believes in me, and to my children, Yonatan, Binyamin, Miriam, Nechamah, and Rivkah, who gave up countless Sundays with me for this book.

I am very grateful to Chaim Borevitz and Linda Feinholz, who edited every one of my chapters and who coached me to transform my writing to a much more user-friendly style, caught my mistakes, and made significant contributions to the thought that permeates this book.

I thank Daniel Jordan for his help in editing several chapters.

I am grateful to my contributors, every one of whom worked very hard to communicate their expertise to you. They all have produced excellence. In particular, I thank my contributors whose work would have appeared in this book had space permitted. Instead, their work is available to you as supplementary material on my website, www.abramsvaluation.com, under Books: How to Value Your Business and Increase Its Potential Thus I thank Linda Feinholz, Dan OConnell, Jim Stump, Ed Schuck, Penelope Roeder, and Jim Ward.

I am grateful to my lovely, sweet editors, Kelli Christiansen, Ann Wildman, and Ela Aktay, who have all been patient and a delight to work with. Ela was my editor on my first book, as well as the beginning of this one. I express my gratitude to Jeffrey Krames and the McGraw-Hill team for believing in me a second time.

I thank Dr. Shannon P. Pratt for his very helpful comments on my book. Dr. Pratt is a legend in the valuation profession, and it was an unexpected great honor that he provided me with edits.

I am always grateful to my great teachers, Mr. Tsutomu Ohshima and Christopher Hunt. They modeled power and integrity and helped me draw forth my best.

How to Value Your Business and Increase Its Potential will teach you just that: How to value your business quick and dirty, and how to manage it to increase its worth. I have written it primarily for business owners, but others can also benefit. Here are some of my assumptions about the reader:

If youre not currently thinking of selling your business, you are nonetheless curious about how much it is worth now, and very curious about what its worth will be when you reach retirement age.

If youre thinking about selling your business now, you are burning with curiosity about its value. This is true as well if you are considering buying a business. This book will help you calculate the right price in both cases.

Most of you are uninterested in business valuation as a science and as an art form and would prefer to get the easy version of the math rather than the complete version. A few of you want the hard stuff. Therefore, I have attempted to keep mathematics out of at least the text as much as possible. Thus, the math youll find in the chapters is there because its necessary. Optional mathematics for quantitative connoisseurs appears in the appendixes and occasionally in documents you can retrieve on my Web site.