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There is often a need for a business owner to ensure that their venture is viable. Business viability is a concept that implies the potential of an enterprise for long-term survival while sustaining profits. In other words, it is a matter of if revenue from a venture exceeds expenditures on it. It is necessary to evaluate a set of financial indicators to show that a venture is viable. Gross Margin is the ratio that represents the amount of revenue from total sales retained after direct costs incurring and makes it evident if a venture is capable of profit-producing. Cash Flow shows the amount of cash transferred in and out of business, which is a realistic indication of a venture’s viability, especially compared to similar size competitors. The asset/liability concept assists in understanding if the amount of assets of a venture is enough to pay debts. Liquidity is another vital ratio that implies a venture’s ability to raise cash in case of immediate necessity. Finally, the availability of funds means the opportunity to pay any obligation, which is also an indicator of a venture’s viability.
Several methods can be utilized to value a venture, for instance, when there is an intention to buy an existing business or a start-up. The first method, Cost-to-Duplicate Approach, implies how much it would potentially cost to build the same venture, minus intangible assets of an existing one, which provides a fair estimation of such a business. Another approach is the Berkus Method, created for pre-revenue ventures, is includes the estimation of projected revenues in an expected period. Finally, Scorecard Valuation Method is also the significant one, based on the assessment of comparable companies utilizing a set of indicators such as the size of the opportunity, competitiveness of the environment, and others.
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