How can you increase the value of your business in a sale? One important segment that is often overlooked by traditional cash flow valuation methods (DCF Model) is your working capital. The key question is “how much working capital do I need to run the business to meet my acquirer’s expectations?” If I have an excess amount of stock, this needs to be accounted for in order to fairly compensate the seller for this real cash tied up in working capital.
In today’s video, I talk about how adjusting for this difference between “normal” working capital levels and what the business currently holds can result in either a higher or lower acquisition price. This real cash difference is often overlooked and put off until the end of the negotiation process therefore hurting the true valuation estimate.
The key takeaway is - the level of working capital to transfer on sale should be what is needed to continue running the business - no more, no less. Any difference needs to be adjusted for in the final acquisition price.
If you want to read more, consider the CBV’s business journal article. Click the link below;
cicbv.ca/wp-co...
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For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories.
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30 сен 2024
