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How much is my company worth?

When we have goods that are easy to exchange this question is asked based on what the market is willing to pay, and it applies to properties, vehicles and practically all goods because there are web portals that in a very simple way can determine value ranges.

But if someone suddenly arrives and says “I want to buy your company, how much is it worth?”, the answer is not so simple, because although what the market is willing to pay is always a premise, access to this information is not easy to access.

In developed countries where the accounting and tax systems have public regulations, companies are traded as a commodity because it is assumed that the values are audited, reviewed and controlled.

In Latin America the issue is like this only in the corporate segment, but what happens in the middle or small segments? In this case we must carry out a valuation process that, although not extensive in time, can be complex due to the quality of the information.

What makes this process difficult? events such as unaudited financial statements, continuous changes in accounting styles, confusion between company assets and shareholders, etc, etc.

Therefore, if you want to answer this question and just as you know the value of your house, your car, your apartment on the beach, you should assume that it is better to be prepared to answer this question in advance so as not to embark on a sale that will cause you to encounter uncomfortable surprises.

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SMEs: Prevent or Lament

Common sense tells us that during the winter we should be attentive to the weather report so that we are not caught in the rain without the proper clothing and umbrella. If we are not prepared, we can obviously get wet. In an ideal scenario, companies also take all the necessary financial safeguards to avoid being surprised by a crisis that could jeopardize not only the fulfillment of their obligations, but also the very survival of the business. 

Unfortunately, the reality of many micro, small and medium-sized companies -which account for 98% of the country’s labor capacity- shows that there is still a great deal of improvisation in financial management. Companies do not detect where their weaknesses lie until a local or global event – a crisis, market or technological changes – bitterly reveals to them that they could have avoided a debacle if they had been “armored”. 

It is in normal and prosperous times that we must properly prepare for crises, because when the crisis has arrived, there is no more time. It should not be forgotten that the economy moves in cycles of highs and lows, of stability and volatility. Experts who have studied the subject point out that major crises occur approximately every 10 to 12 years worldwide and that they occur in increasingly shorter periods. 

A wise warrior knows that he cannot wait to receive an attack before saying: “I will have to design and make my own armor” or “get a blacksmith to give me an armor resistant to everything”. That moment has passed, and now he must be in the trench all day, resisting the attacks of his enemies and in the few moments of rest, dreaming of the time he lost. 

Similarly, companies must be financially shielded to meet their challenges. For Chilean companies, their main armor is working capital, since in general they do not go bankrupt or lose their battle because their products are deficient, but because they do not know how to optimally use their “cash flow”. 

The most recent international crisis alerted that many SMEs in Chile have not yet taken seriously that the management of this concept is vital when planning the development of growth or decline, for their own or external reasons. A cash flow mismatch can cause a great idea, a tremendous innovative effort or years of entrepreneurial family effort to disappear for lack of proper financial shielding.