What the Finance Guys Won't Tell You

What the finance guys won’t tell you about Valuation!

One of the simplest ways to value a business… is also one of the most powerful.

It’s called the income capitalization method.

At its core, it answers one question: “What return do I need on my money?”

Here’s how it works:

If a business produces $100,000 in annual income

and an investor requires a 20% return…

The value is: $500,000 ($100,000/20%)

Because:

“I want a 20% return on whatever I pay.”

That’s it.

No complex projections.

No multi-year forecasts.

Just:

  - A stable measure of income

  - A required rate of return

Now this can get very complicated. Don’t get me wrong… but at its core its pretty simple. What makes it complicated? Partly that required rate of return.  

And here is the key:

High Risk ➡️ Higher Rate of Return Required ➡️ Lower Valuation

Low Risk ➡️ Lower Rate of Return Required ➡️ Higher Valuation

Next! We will talk about how to lower risk.