Adding Value to Your Jewelry Business
What's your business worth? How can you make it more valuable?
BY JOEL PECK, CPA
As a business owner, you are asked often how much your business is worth
and how you can make it more valuable. You are asked by your friends, your
competitors, your banker, children or estate planner. Regardless of how
often you are asked, like most business owners, you really don't know the
But having the answers to these two fundamental questions distinguishes
the owners of a business from the employees. Without the desire to know
how much your business is worth and how to make it more valuable, you will
be limited to running the business day to day without focus and without
Fewer than one-third of all businesses make it to the second generation
of owners; fewer than 10% make it to the third generation. This is because
most business owners don't spend enough time objectively analyzing their
business, looking beyond the short-term.
Think for a moment how much time you've spent recently with your accountant
discussing tax planning. How much time have you spent with your bank or
other financing partners discussing plans for the upcoming year? How much
time you have spent evaluating what it will take for your business to leap
to the next level of profitability? If you haven't spent much time on these
important questions, today is the day to begin.
Value Is in the Eye of the Beholder
So what is your business worth? The answer depends on who you ask. To you,
the current owner, the business is priceless! It's your life. It's your
being. It's possibly more valuable than any other possession.
To your creditors, however, it's not worth much more than about 80% of
your accounts receivable plus 70% of your inventory less 100% of your accounts
payable and secured loans.
To prospective owners, your business is worth what they can make of it.
The value of the business to them is less than the value it is to you because
they don't want to pay you for what they can do once it is theirs.
To non-working relatives, the business is a cash cow, delivering income
and value with little or no effort (and often with little or no investment).
To non-working equity partners, the value of your business is a combination
of the dividends they are being paid and the growth in value of the company.
This group has the clearest idea of the "real" value of your business.
The basic items used to determine the value of a business are:
- Net asset value (market value of assets in excess of liabilities).
- Current earnings (from financial statements or tax returns).
- Earnings potential.
The important factors in valuing the earnings potential of a business
- The history of the company and the nature of its business, including
the risks involved, historical trends of sales and profitability, seasonality
and depth and abilities of management.
- The general economic outlook for the industry and for the local economy.
- The competitive position of the company, including the mix of products
and exclusive lines carried.
- The ability of the company to survive extended losses or economic reversal.
- The ability of the company to generate net profits in excess of the
salaries and bonuses of the stockholder employees.
Stock markets constantly report the value of the largest businesses. The
most reliable way to determine the value of your small business, however,
is to hire a qualified business appraiser who has specific experience with
your type of business. The next step is to work on each of the elements
of value to keep it rising. Next month's article will focus on the importance
of drafting a business plan and using it to keep your company growing.
Joel Peck is the managing partner of Joel Peck & Associates, a
public accounting firm devoted to assisting the growth and prosperity of
family-owned businesses. The firm's client roster includes businesses from
a variety of industries, including the jewelry world. Joel is a frequent
speaker and author on the value of building a solid business plan, managing
cash flow and the importance of estate planning.
Copyright © 1998 by Bond Communications.