Golden Goose Mathematics

Crucial points of financial mathematics necessary to the understanding of family business owners are discussed. Families should understand returns they achieve on their investment in their businesses. Business performance is usually measured as a return on equity - profit divided by the amount invested in the business. Investments are evaluated by comparing them with alternatives. Sometimes it is safer and more prudent to diversify risk beyond just one asset, the company. The more the business grows, the better early gifting becomes relative to later payment of gift or estate taxes. Taking more money out of the business is expensive and can compromise future growth. A company can grow approximately as fast as it leaves after-tax money in the business without increasing debt levels.