I was asked by a client last night what was the net worth of her business. She's applying for a loan and that's one of the questions. It's something I should know I'm sure but I was thinking more along the lines of what a business is worth when selling, which I believe includes goodwill, 3 x profit etc. The business is a 4 day a week market stall selling fabrics as well as online, is nearly 3 years old and 2 years + a short 6 week period at the beginning to the end of the tax year have had accounts done. Sole trader, under the VAT threshold.
She is moving into a retail unit in Jan/Feb and the business is expanding well.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
Hi John
I would say that its looking at existing net worth for the business, rather than a projected sales price/value of the business jobby.
Net worth calc = Total Assets - Total Liabilities.
I suspect the form will ask for a date for the information plus whether or not the figure comes from year end final accounts or management accounts. I would be surprised if she doesnt have to supply the supporting figures as well.
Word of warning (which Im sure is not needed) - can the business profits cover additional cost of loan/rental/business rates/insurance etc? Depends on her existing market stall I guess as some of them carry crippling charges as it is.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you Joanne, very helpful. Similar cost in rent and no business rates so its just the heating and light, insurance and loan costs, and she's confident it's a goer.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
