The Game with Alex Hormozi How Businesses Exaggerate Their Value | Ep 333
Sep 30, 2021
Delve into the world of business valuation as common myths are debunked! Explore seven key methods people use to measure a business's worth, from contract values to yearly profit. Discover Alex’s favorite measurement of net worth and its pros and cons compared to others. Learn how true value goes beyond mere revenue figures and the importance of understanding owner earnings. This insight is crucial for anyone looking to grow or evaluate a business effectively!
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Misleading Metrics
- Be wary of "marketer math," where contract value is extrapolated to inflate perceived revenue.
- Lifetime revenue is a misleading metric as it doesn't reflect current performance.
Business Valuation vs. Revenue/Profit
- Business valuation considers market worth, often based on profit multiples like EBITDA.
- Yearly revenue and profit provide a clearer picture of current performance, especially when analyzed together.
Owner Earnings vs. Net Free Cash Flow
- Owner earnings, or the amount extracted from the business, reflect actual owner benefit.
- Net free cash flow measures profit after reinvestments, crucial for evaluating long-term potential.