10 Steps to Improved Business Valuations

Instead, develop the “intrinsic value” or “going concern value” of your business or investment opportunity integrating your:

• Strategic Plan or your Vision as the current or future owner
• Company’s revenue structure and cost structure
• Financial Projections that translate the business plan into economic terms

Your road map to developing an accurate value of your business is your business plan or strategic plan.

• This plan is critical to communicating your vision to other people such as equity investors, banks or lenders, key employees
• It provides the framework from which to assess your company or investment opportunity relative to alternative investments

Develop a realistic, not conservative, forecast – leave room for the skeptics.

• Lenders and prospective buyers will layer in plenty of conservatism
• The most common mistakes are to overestimate revenues, underestimate expenses, and to underestimate how long it takes to hit your revenue projections
• Ideally, a Base, Low, and High forecast help to frame the prospective range of business value

Your forecast should cover the years necessary to reach a reasonably steady state of operations. Doing so:

• Allows for the recognition of your investment and start-up efforts, if applicable
• Demonstrates the financial rewards for successfully running your business

What will it take for your business to stay competitive?

• Financial projections must anticipate the investment required and illustrate the benefit earned to stay competitive.
• What will change for you – competition, technology, regulations, consumer tastes?
• What competitive strengths can be more fully developed?
• What weaknesses, if not corrected, may cause your company’s downfall?

The present value of the company’s cash flows that occur beyond the last year of a forecast, known as the Terminal Value, is critical to estimating the full value of your business.

• What are your expectations over the long run – continued revenue growth, increased competition, early exit via IPO or sale to a strategic investor?
• These assumptions and others are critical in profiling the business value of your company.
• The term residual value can be used interchangeably with terminal value.

Represents the blended required rate of return desired by equity investors and debt investors to fund your business.

• Use a realistic cost of capital that represents your opportunity cost for a comparable investment elsewhere
• If debt is borrowed does it require a personal guarantee by you or the shareholders?
• Often referred to as Discount Rate

It’s a lot to take in. Use an expert in finance and valuation to estimate the value of your business.

• Over or underestimating the value of your investment opportunity can be very expensive
• A valuation professional can give you an impartial view of your company’s value
• And a well prepared valuation report can facilitate a successful negotiation between opposing parties

You will be able to:

• Enjoy peace of mind and improved business planning
• Share your vision with prospective equity partners
• Buy or sell your business from a position of knowledge and strength
• Facilitate project financing negotiations
• Satisfactorily comply with tax or legal requirements