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Compared to Accounting, Finance is ruthlessly forward looking. Most financial valuation formulas value an asset by discounting the asset using the cost of capital (interest rate) to the present day. The basic lesson that founders can learn about asset valuation is that Accounting is past and Finance is future.
Prepare Financing Options. By ensuring you have plenty of access to lines of credit or equipment financing, you can ensure you don’t end up with a cash shortage that stops your business short. One relatively pain-free step you can take early on is to review your vendors and make sure you’re not missing cost-cutting opportunities.
For some businesses, when purchases of goods for resale are a large component of cost, the value is determined after first deducting all cost of goods purchased from third party sources. (A Free cash flow is important when the buyer intends to finance the purchase using the revenue from the purchased company itself. 4.
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