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The use of herbal medicines is gaining more and more popularity nowadays, as people have started looking for alternatives to conventional drugs. Perhaps the use of herbs for curative purposes is most common in Europe, where even the term “apothecary” is still used in Germany. In the United States, the use of herbal medicine is also rising, as many people now prefer them over chemically-produced prescription drugs. In fact, there is now a growing community of medical doctors that allow and even recommend herbal medicine to their patients, either as a stand-alone cure or taken together with conventional medical treatment.
You can also take herbal medicines on your own, although it is widely recommended that you first consult a physician before ingesting any type of medication. You also have to be aware of the different types of herbs and their general uses. Nowadays a lot of people still indulge in self-medication without being fully aware of the proper use and dosage of such medicines. Acquiring an adequate knowledge about herbal medicines will allow you to get the most out of their curative properties without negative consequences.
Here are some of the most common therapeutic actions of herbal medicines:
Diuretic Herbal Therapy – Herbalists have always believed that water is the most important nutrient for life. They believe that a water balance exists in the body, and problems can result if this balance is disturbed. It is believed that by careful regulation of the body's water, symptoms such as hypoglycemia can be alleviated. Some herbs that are believed to possess water-balancing properties include dandelions, horsetail, and juniper berries.
Perspiration Herbal Therapy – Perspiring is actually an age-old remedy that was used to get rid of illnesses and infections like cold and flu. Usually, perspiration is achieved by drinking hot herbal teas. Sometimes, a hot bath is also recommended, which is followed by resting in bed covered by warm blankets. Herbs like cayenne, peppermint and ginger are among the common herbs used to induce perspiration.
Stimulation Herbal Therapy – Herbalists believe that most illnesses come from a sluggish flow of energy, which includes lymph, blood, nutrients, nerves, and even body waste products. This flow of energy needs to be stimulated in order that health may be restored to the body. Some herbs that are believed to stimulate this flow of energy include black pepper, ginger, and cloves.
Tranquilization Herbal Therapy – Symptoms like irritability, nervousness, or insomnia are often cured by using herbs that are believed to possess natural tranquilizing properties. These soothing herbs can soothe and lubricate joints and bones, calm the muscles and nervous system, and relieve pain. Herbs that are regarded as natural tranquilizers include marshmallow root, oats, and valerian.
Tonification Herbal Therapy – A herbalist will usually recommend tonification for a patient who's feeling run down or weak. Sometimes it also works for patients recovering from a serious health condition. Tonification works by improving nutritional deficiencies in the body. A lot of herbs are naturally rich in vitamins and minerals, so certain herbs will be helpful for certain patients. Herbs that are considered natural tonifiers include alfalfa, goldenseal, and seaweed.
As a trusted business advisor you've probably heard former business owners telling people that they sold their business for “six times earnings.” As investment bankers, the first question we hear from prospective clients is “Can I get the same multiple if I sell my business?” The answer is an unequivocal "it depends." It depends on a number of things, but first and foremost, it depends on how you define “earnings”.
As all investment bankers and sellers know, “Cash is King.” After all, cash removes the seller's risk in the transaction. However, when a buyer pays cash for a business, that buyer wants to know exactly how much the business is earning.
Let's start with what seems to be a pretty basic concept: earnings.
The Definitions of Earnings
There are several definitions of earnings; each is potentially different from the other depending on the type of company and the way its owner runs the company. Typical measures of earnings include:
Net Operating Income: This is sales less the cost of goods sold and operating expenses.
Pre-tax Income: This is net operating income plus non-operating income (like interest on notes, etc.) less non-operating expenses (like one-time, non-recurring expenses).
After-tax Income: Pre-tax income, less all company (but not individual) taxes.
EBIT: This stands for earnings before interest and taxes.
EBITDA: This stands for earnings before interest, taxes, depreciation and amortization
Add to these measures, the need to “adjust" earnings by deducting capital expenditures, and adding back excess rents, excessive salary and bonuses paid to the owner and his or her family. This results in something called:
Owner's Discretionary Cash Flow or True Cash Flow: This is the amount of pre-tax money distributed to owners via salary, bonus, distributions from the company such as S-distributions, and rental payments in excess of fair market rental value of the equipment or building used in the business. This provides buyers with the most accurate indicator of how much “cash” a company can actually produce and is often the most meaningful indicator of value.
Which brings us back to our original question: Is it realistic for a business owner to expect a six times multiple when he sells his business? There is no one right or wrong answer to this question.
To show you how tricky this can be, let's look at a former client of ours. His business was not doing well. He had revenues of approximately $7 million but, even using the most generous definition of earnings, the company was not earning more that about $100,000 per year. We ultimately sold the company to a buyer of distressed companies who paid book value for its assets or about $2 million. Despite this low value, our client was extremely happy because his business sold for 20 times earnings! In this case the buyer was buying assets, not earnings, so an earning multiple wasn't even appropriate.
To determine which measure of earnings is appropriate for a business, you need to look first at how the seller's industry defines “earnings”. This "earnings" measure reflects how much a buyer can afford to pay for the business. The actual multiple applied will be based on:
>> which definition of cash flow is being used,
>> what is appropriate for a given industry,
>> what the company's specific growth prospects are,
>> how the company's earnings compare with similar companies in
the same industry, and finally
>> how the company's earnings compare with the company's asset value.