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Trying to peg a firm's value

September 08, 2008|Karen E. Klein | Special to The Times

Dear Karen: I read your recent column about business valuation calculators. Are the online calculators useful?

Answer: Determining the market value of a small company is both art and science, said Steve Garber of FTI Consulting. "A well-developed online business valuation calculator can properly model the science piece of the valuation puzzle but cannot properly incorporate the art -- or human judgment and experience -- part of the analysis," he said.

An online calculator can provide a ballpark figure for internal use. But plugging numbers into a formula will not capture the full value of a company, Garber said.

"If the purpose of the valuation is tax-related or transaction-related, an online business valuation calculator does not provide enough input to properly capture the value," he said.

If you need a reliable, accurate valuation, spend the money for a comprehensive analysis from a certified business appraiser.

Pros and cons of a home business

Dear Karen: Our 10-year business lease expires in November and the new terms are not attractive. We're moving to my residence in Long Beach, where home businesses are allowed within limits. What pitfalls should we be aware of?

Answer: Moving a business home can be both psychologically satisfying and financially rewarding, but there are definitely limits on home businesses, said Paul Edwards, the author -- along with his wife, Sarah -- of 17 books, many on home businesses.

"Some communities prohibit a separate entrance for a home office; others require it. Some homeowner association restrictions can limit or prohibit operating a home business even when the zoning code permits it. Limits may be put on the number of business visitors per day -- and a UPS or FedEx delivery may be defined as a business visit. There may be restrictions on on-street parking too," Edwards said.

Think about how fussy your neighbors will be if your home-based business will be noticeable in the community.

Launching a new product

Dear Karen: A teacher friend and I have an idea for an educational product that we believe can be a winner. What literature can help us move from idea to product to marketing?

Answer: Before you spend money protecting your idea legally or marketing it, take the time to research the market demand and distribution channels for your product. You should do test marketing and a feasibility study. If the results look promising, follow up with a business plan.

"More than 30,000 new products are introduced in the U.S. each year and fewer than 10% ever achieve any appreciable sales," said Jeff Williams of "The ones that do almost always start off with an in-depth market analysis."

You can find feasibility study guidelines and other start-up business help from the Small Business Administration, at businessplanner/index.html.

Williams recommended that you look up intellectual property protection at the EHow site at /articles_4621-patents.html.


Got a question about running or starting a small enterprise? E-mail it to ke.klein@ or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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