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What’s the valuation of your company? This can be a difficult question to answer for many Entrepreneurs. Business valuation is the process of calculating the financial value of your company and involves an assessment of your company with the goal of arriving at the intrinsic value of your business.
Often, we speak with Founders that either have a valuation based on their perceived ‘future’ projections or have no idea whatsoever how to value their company. Having an inaccurate valuation, or not having one at all can immediately turn off some investors and limit your fundraising prospects.
There are a variety of ways to calculate the value of a private company. Below are four such methods:
Market Value Valuation Method - this method determines the value of your company by comparing it to similar businesses. It is the most subjective approach and it can be difficult to find true comparables with sufficient market data but it can be a useful approach to gauge what your company might be worth. However, a more calculated approach is better as companies tend to overestimate their value using this method or do not use truly comparable companies.
Discounted Cash Flow (DCF) - this method combines future revenue and discounts them to the time of assessment. This method is often used when the cash flow is expected to fluctuate substantially in future years due to rapid growth.
Revenue Method or Multiples of Earnings Valuation Method – This method takes the current annual revenues and multiples it by a figure known as the industry coefficient. There are multipliers specific to the industry you are in which account for that industry, as well as the economic climate and other factors.
Book Value Valuation Method – this method is the value of the shareholders equity as shown on the balance sheet. The book value is derived by subtracting total liability from the total assets of a company. It tends to yield a lower valuation among the various methods but it can be a useful method when your business has valuable assets but low profits.
At Company Finder, we can provide you with an unofficial valuation report based on our partners proprietary software. However, you may want to consider bringing in a professional appraiser to assist. These professionals are objective, know the right multipliers to use, the recent comparable companies, and how to apply the dynamics of the market to your business.
Interested? Please contact us to learn how we can assist.
Angus Burke
CEO of Company Finder