Do You Know the Net Worth of Your Business?

Guest contributor Kashoo says:

The United States Small Business Administration (SBA) generally classifies a "small business" as having less than 500 employees and about $50 million in annual sales. Here at Kashoo, we specialize in working with freelancers, solo practitioners, SOHO (Small Office Home Office) owners, and small businesses—none of which even register on the SBA's Size Standards Table. But no matter what the size of your business, it is important for you to know its net worth and you can calculate your company's net worth using the reports generated from your online small business accounting software—Kashoo is real accounting for real small businesses like ours!

The net worth of your business is different from its market value because to calculate the net worth, all of the assets, liabilities, and equity listed on your balance sheet are reported as historical costs. Business owners often use their net worth when applying for financing from banks and other lending institutions.

There are two "types" of net worth for businesses:

1. Tangible net worth—to calculate your tangible net worth, subtract your company's total short- and long-term liabilities from its short- and long-term total assets. The balance sheet report Kashoo can generate will give you this real-time and up-to-date information.
2. Intangible net worth—intangible assets include goodwill, customer databases, and other items such as patents and copyrights. It is recommended that you utilize the services of a valuation expert if you are going to include the value of intangible assets to your tangible net worth.

Banks usually accept just the tangible net worth when deciding credit worthiness because it is often too difficult to quantify abstract intangible items.

Your company's net worth serves as yet another snapshot of the financial health of your company—even your "company of one." Your net worth can be evaluated over several reporting periods to help determine any areas of your business finances that may need reworked for maximum profit.

To view the original article, visit the Kashoo blog.