A sustainable business also focuses on valuation which is the amount your company will potentially sell for over time. Your valuation is a formula that takes into account your assets, your profitability and your cash flow and that equation results in what your company might be worth in a one, three or five year period to another company.
There are several different reasons why you might want to know the value of your business, including selling it, merging with another business, tax or loan purposes, for estate planning, allocating the purchase price among business assets, establishing an estimate of the value of partners' ownership interest for buy-sell agreements and more.
Valuations might also be used to calculate stock options (aka, 'funny money'). These are not publicly traded stocks, but rather, a metric for developing and managing ownership in the business.
A valuation requires a complete analysis of historical operation of the business itself as well as a study of the projected future for the industry, the economy and the competitive advantage of the company.
Companies and venture capital firms buy or invest in people, patents, predictable revenue and potential, not products nor your pride.
