How do you assess investment proposals?
If someone offers to invest x dollars in your business for y percent of equity....how do you assess whether or not this is fair? I've seen examples of investors debating over this with business owners but I never understand why they are negotiating for lower/higher percents/investments.
what's the general rule? How does the investment deal reflect your business' worth?
Investment best answer:
Answer by Damocles
There are two things happening here. One is calculating the actual value of the business. The other is evaluating the risk.
The cash value of a business can best be calculated in terms of the present value of future income. There are simple formulas for this purpose which your accountant or finance manager can use.
The risk to the investor is quite another matter. It is very hard to estimate the risk involved in a business. It is more of an art than a science. There are CPAs who specialize in that.
If the present value of the investment multiplied by a risk factor is greater than the value of the cash invested, the investor would buy. However, if the future income does not justify the risk involved, he would rather invest in something else.
Investment
Post Business Concert #3 - Kunshan Autumn Investment Promotion Fair - 2011 - China.JPG
Image by Jason Michael
Orignal From: How do you assess investment proposals? and Post Business Concert #3 - Kunshan Autumn Investment Promotion Fair - 2011 - China.JPG
No comments:
Post a Comment