Question about business
Does my small business need to file a tax return?I am a small business owner and have been developing my company for the past year. Because I left my previous job to start this business I do not have a current income and because my company only recently officially "opened for business" we do not have a profit line. Do I need to file? What about the business expenses that I incur?
As a Business Broker one of the most common questions I receive from small business owners and entrepreneurs I meet is this the following: How do I get a quick idea what my business might be worth? More often that not, most of these individuals are just looking for a rough “street valuation” to determine if they should sell now or sometime in the future. Although there are many unique factors to consider when valuing any individual business, and there are generally no definitive or concrete rules on what any particular existing business maybe worth at any given time, below are a few widely used and common quick business valuation methods that should give most small business owners an adequate starting point to help determine what their business might be worth in today’s market place.
Multiple of Seller’s Adjusted Net Cash Flow:
The most widely used method to value and determine an asking price for a small business is based on the adjustment or recasting of a business’s most recent annual profit and loss statement. The goal in this process is to determine the true earning power of the business by adding back to the net profit all the non-essential or discretionary expenses not necessary to run the business to demonstrate a more realistic net cash flow for the owner.
Once this number is determined, the next step is to multiply it by a business category related multiple (service, retail, manufacturing, etc) that are widely used as rules of thumb by the business valuation and business brokerage community. For instance, in general terms small service related businesses are generally valued at a multiple of somewhere 2 to 2.5 times the Sellers annual adjusted net cash flow. Small manufacturing businesses generally receive higher multiples that can be in the 3 to 3.5 times range.
There are a variety of resources available to the public to find and research cash flow multiples that may be relevant or specific to your business. This includes well known guides such as the Business Reference Guide by Tom West, and business for sale directories such as BizBuySell.com that provide a data base of recent business sales and the multiples achieved. You may also want to visit fastbusinessvaluations.com which provides a free online business valuation calculator based on widely used industry related valuation multiples.
I would also recommend if you are considering selling your business to contact a local professional business broker in your area. He or she may be able to provide you with valuable information about recent sales in your market of similar businesses like yours, and the net cash flow multiple that they eventually sold at. You can find small business brokers in your area by visiting a directory like findabusinessbroker.com
Industry Rules Of Thumb:
Another commonly used quick business valuation method is to use a general rule of thumb. A rule of thumb valuation basically consists of using a simple formula that estimates the value of a business through a set of established and very general business pricing guidelines.
For example:
Auto Repair Shop: 35% of annual revenues
Full Service Gas Station: 2 to 3 times Sellers Adjusted net
Fast Food Business: 40% of annual revenues
Janitorial Service: 2 times Sellers Adjusted net
Motels: $20,000 per room
Keep in mind like all quick valuation methods “rules of thumb” are subject to the various unique characteristics of each target business being valued. Reference books like the aforementioned “Business Reference Guide” offer a comprehensive and excellent database of “rules of thumb’ by individual business category.
Market Comparables:
With the advent of the Internet, business owners now have the ability in most cases to view dozens (sometimes more) of real time listings of businesses very similar to their own on large online “business for sale” directories. Although it’s been my observation that many of these small businesses listed for sale tend to be overpriced, these directories such as bizbuysell.com still can provide a very useful source of free raw data, including rough comparables of both “for sale” and “sold” business listings. Keep in mind also that very few businesses will ultimately sell at there listed asking price, but if priced properly, (and the price can be supported with good financial records) many should ultimately sell with in 80% of their asking price.
Liquidation Value:
This is a relatively simple and fast way to value a small business by determining what the sale or liquidation of all the businesses’ hard assets (equipment, inventory, receivables) would generate in total proceeds on the open market after paying off any liabilities or debt associated with the business. Although a business liquidation valuation is a relatively straight for ward process, it does have significant draw backs as a valuation method because it does not take in to account the value of important factors such as goodwill, established customer/client base, future growth potential, and more.
Summary:
Keep in mind that even though all these valuation methods above offer either a quick and inexpensive way to get a rough idea of the value of most small businesses, or can be used as pricing guidelines when selling a business, at the end of the day a business is worth what some else is willing to pay for it.
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Chev
on February 25 2010
Hi,
i have found a site to be usefull, just check this out
Ken
on February 25 2010
You need to keep accurate records when running a business. This will be your best defense if you ever get audited.
For IRS purposes, you need to make a profit every 3 out of 5 years to have the IRS prove that you are not running a business. Otherwise, it is up to you to prove that you are running a business and not doing a hobby. You can prove that you are running a business by keeping your business accounts and personal accounts separate.
You can write off any legitimate business expense including dinners with clients, car expenses, equipment, etc.
Having a separate checking account and credit card is a good idea. However, it isn't necessary. You can comingle your business and personal expenses using your personal accounts. But, if you do this, then it will be harder for you to prove that you are running a business.
For your revenues, you don't need a corporate account to make you deposits. You just need to make the deposits in your separate account that you use for business.
You can read Publication 334 for more information.
nacao
on February 25 2010
Surely THIS (getting education to embrace right-brained thinking) is what our Western world needs to clean out the poisoned thinking that has brought us into the mess we currently experience? Surely once we have sorted ourselves out, then we are in a position to help those in the Third Word? You are a great lady and a very positive force for these urgent, historic and pivotal times. May you and your family experience abundant Love and Blessings.
guzen
on February 25 2010
Rania you are the most important woman in the world!
Mikelo
on February 26 2010
How about a book store, if you are looking retail?
I cant say if it would work in your town, you need to do marketing research to see what would succeed in your town.
Also in business .. Location, Location, Location is VERY important to success .. not only do you need the right business, you need the right location ..
Passion, YES .. you do have to work long hours but passion because you believe in what you are doing.
I work from home and have the utmost compassion and belief for what I do, I believe that is what brings me success ..
If you don't like books, don't like to read .. then a book store probably wont make sense. Did deep .. Only you know what you really want to do.
GL!
Wayne R.
on February 26 2010
Yes, the courses you speak of will help you to become a Business Analyst.
A BA can be on the client side or the IT side. If on the client side, they are interfacing with work group domains that process the work and review what they need. They generate requirements and then work with the IT side to update or generate processes and applications to fullfil the business needs.
If you're a BA on the IT side of the house, then you're taking all the requirements and developing processes and application solutions. Your job is to work with the client to generate a business solutions document (there are many names for it) and get signoff. Then, you need to make sure that solution becomes reality by working with systems analysts, programmers, and testers. You're generally responsible for the delivery of the solution. Although, if the solution revolves around process changes with other work group domains, you normally work with a PM (Project Manager). Never the less, you have end to end responsibilities for the IT delivery to insure the client gets what they need (and paying for).
With the offshoring of work to cheap labor, to remain associated with software development, the BA role is a good profession.
corpo
on February 26 2010
I say this too.
You probably won’t post this.
In fact, you shouldn’t.
The people that you are representing gambled away our future in the derivatives market.
We are broke.
You know it and I know it.
So who is it that you are defending exactly?
earthlink
on February 26 2010
Palestinian beauty!!!
The Invisible Woman
on February 27 2010
The requirements vary according to your state. Call the business license office for your county and just ask them if you need a business license to operate an internet store. I live in Georgia, and in my county, you do.
jpro
on February 27 2010
Hey Rania.
You make some good points
.
Maybe certain real issues should be brought to the forefront. Multinational corporatism should not override national sovereignty. This is the number one issue on the global stage and you know it.
Secondly, the people are aware of the lies and spin being pushed by the same powers trying to maintain control. It’s having a negative effect and it isn’t going to last much longer.
Now as for the educational system, you already know.
watch?v=CWGsj5NgZ5Y
Austinite
on February 27 2010
You can't post a Proposal for Sale of Business here. It is a comprehensive document similar to a business plan with dozens to hundreds of pages. Contact a broker like VR Business Brokers and see if you can get help. Yours is a unique business driven by personal contacts and is not easily sold.
SarahR
on February 27 2010
Hiiiiiii..
I think you have to choose the Marketing section in Human Resource Management(HRM) because in marketing you get the nice job in the good reputed company on a high post..
cooolioooo
on February 27 2010
business school is the right field to study, if you choose your college carefully, some have an entrepreneurship track/program
urbantool
on February 28 2010
For the world to progress into a better world, if EDUCATION is the key, then BUREAUCRACY is the stopper.
With the average global IQ going DOWN, and critical information being ridiculed into entertainment, will people ever understand?
With the dumbing down of MEDIA ENTERTAINED nations, education may just be the only way to stimulate brains to learn to think again. And maybe turn the average IQ back up again?
But will the ever growing bureaucratic OVERHEAD allow this to happen?
psychic
on February 28 2010
The Western World has been dumbed down by a systematic focus on logic and left-brain reasoning. In this way, a country can create un-thinking masses who can be easily controlled. Also, left-brain thinking creates an ‘us and them’ mentality. It creates a ‘problem-focussed’ mentality. It creates a ‘me’ rather than a ‘we’ society. Right-brain thinking creates a ‘we’ society – a society where respect, sharing, solution-focus, inventiveness and genuine inquiry into difference happen.
truth
on February 28 2010
haha he said ma’am instead of your majesty
But I love Queen Rania, she is not only beautiful but smart, and caring
rails
on February 28 2010
I just can say that you are just a great smart queen wish you can do something for the poor jordanians. I like your accent and the sense of humour you have.
Gina G
on February 28 2010
Are you asking the same question or was my answer deleted? YOU CANT COLLECT ONCE BANKRUPTCY IS FILED.