Know Your Net Worth

Net Worth

Synonymous with “equity.” Calculated by subtracting the total value of all liabilities owed by the business from the total value of all assets owned by the business. A key question is how the assets and liabilities themselves are valued. One well-known method is “according to generally accepted accounting principles (GAAP).”

Tangible Net Worth

Net worth minus intangible assets.

Intangible Assets

Assets that have value but cannot be physically touched or easily valued, such as a brand, franchise, trademark or patent. Cash, receivables and payables are not difficult to value and therefore are considered tangible assets. Small and midsize private businesses may not have any intangible assets on their balance sheet, but if they do, it’s typically goodwill, which may have been derived from the purchase of another business, or capitalized expenses such as organization or research and development costs.

Book Net Worth

Simply the net worth of your business as shown on your financial statements. Also described as “unadjusted.”

Adjusted Net Worth

Derived by subtracting total liabilities from total assets after adjusting each to reflect its true value. For example, business assets almost always include accounts receivable. Let’s say that XYZ Company’s accounts receivable are shown on “the books” at $249,303, but the business owner knows that this amount includes $33,424 owed by PDQ Inc. that is past due and likely uncollectable. If the business owner were to prepare an adjusted balance sheet, he or she would amend the book value of receivables to reflect a more accurate estimate of value, including all assets and liabilities.