Jeff Cornwall, who writes the outstanding entrepreneurship blog, The Entrepreneurial Mind, has some very interesting observations regarding entrepreneurs and the wealth that they have locked up in their businesses.
“The value of the business is most heavily influenced by its ability to generate free cash flow, generally measured using EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). The most common valuation method for privately owned businesses is based on a multiple of the free cash flow the business generates. The multiple is based on several factors including historic growth of the venture, strength of the industry, strategic advantages of the company, and specific industry valuation standards. The degree to which the entrepreneur is able to improve cash flow through bootstrapping techniques and other prudent management techniques the higher the value that can be created for the business.
As the recession takes hold many entrepreneurs are reporting that their profits are declining. This means that the value of their business is going down as well. So just as wealth is disappearing on Wall Street, it is also disappearing on Main Street. We just don't hear this discussed as often.”
As I read his thoughtful conclusion, I keep coming back to the notion that as entrepreneurs, we need stronger advocacy at the city, county, state and national levels. As entrepreneurs, we are so busy running our businesses that we don’t have the time (or inclination) to lobby our governmental representatives or even to communicate with the local press. But as Jeff points out, while wealth may be disappearing on Wall Street, it’s also disappearing on Main Street and you rarely see a mention of it in the national press and no one in Washington is even thinking of us. That’s something that we just have to change.