Why does my year-end not show what my business is worth?

Because it was never meant to. Year-end statements report what happened in the year, under accounting and tax rules. What a buyer pays depends on the cash the business will produce and how much risk comes with it. Most of that is not on the page.

Several things sit in the statements that a buyer will take out or add back: costs that run through the company that a new owner would not carry, one-time items, what the owner is paid compared with what the job would cost to fill. Equipment and property are carried at what they cost, less depreciation, not at what they would fetch or what it would cost to replace them.

The things a buyer pays for do not appear at all. Customers who come back without being chased. People who would stay after a sale. A business that runs when the owner is away. Neither do the things a buyer discounts for: two customers carrying most of the revenue, obligations that are not recorded, a shareholder agreement nobody has read.

A formal opinion of value is a Chartered Business Valuator’s work, and there are times you will need one. Before that, you can see for yourself what a buyer will adjust and what he will worry about.

What you can look at this week: go through last year’s income statement line by line and mark anything a new owner would not pay. Then write down the three things the business depends on most that do not appear on the balance sheet.