How to arrive at the right valuation for your business in different stages?

It is hard to calculate the business value at each stage as the methods are different for all, so let's find out the way you can find the value of your business.
  • BY Akshay Arora

    Feature Writer, BusinessEx

  • |
  • Dec 06,2017
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  • 11 Mins Read

Entrepreneurs do face the challenge of calculating the value of the business. Some entrepreneurs take this process lightly, which eventually affect their business functioning in the future. It is beneficial to value your business from time to time, as it helps you to know at what pace your business is flourishing in this competitive environment. If the results are good then try to enhance them next time and if the results are bad then try to analyse the mistakes that you made earlier. Business valuation is necessary for all the businesses on whichever stage they are in. To know how important business valuation is you can read the link below:

Related Article: Business Valuation: How important is it for business

How to value your business at different stages of business lifecycle?

Stage 1: Startup

It is hard for the entrepreneur to find a value of the business in the beginning stage of a business. The best way to find the value is to search how much business value is of your competitor then comparison the earnings and expenses to know a projected value. This is a simple process but sometimes other competitors also have not calculated their value. If that’s the case then all you can do is know how much investment is needed to start a new business like yours.  It is essential that you know that a business can be valued positively if you have some revenue otherwise you will be getting the negative response.

Stage 2: Growth

In this stage of business, you can find out the value for your business with the help of given methods.

  • Assets valuation

Analyse your tangible and intangible assets and calculate their value then calculate your liability so that you can differ both the valuations to come to a final conclusion of how much your business overall value is. This is just a projected figure as in intangible assets it is hard to determine their actual value. It is better to calculate by other methods as well.

  • ROI calculation

This is the most common method that companies use for their valuation. In this, the approach is to know how much return you raised with the investments. The common formula that is being used to find ROI is Net annual Profit/Purchase Price x 100.

  • Market value

Generally, an entrepreneur values its business when there is a plan to sell it. If you are planning the same then you can contact some prospective buyers to know what they value your business. It is obvious that they quote less value than the actual one but you will get to know an approximate value then it’s on you what to do. Business valuation calculator service is now available online like one on BusinessEx where you can just enter the necessary details and find the exact business valuation. Also, you can find a prospective buyer for your business.

  • Seek professional help

If you don’t want to do this task yourself then you can always seek a professional help. The professionals like accountants, they can easily tell you the business value as per your balance sheet and financial statements.

Stage 3: Maturity

The business has reached its maturity stage well that’s good and you must have all the financials prepared as of now which will help you find your business value. The methods use in the growth stage will also be viable at this stage as well.

How negotiation between investor and entrepreneur fluctuate the business value?

If you analyse any term sheet that is finalised between an entrepreneur and an investor the value of the business will not match up to the actual business value. There are just two possibilities either the value is high or lower than the actual one. This depends on how good an entrepreneur and an investor is in their negotiation skills. A business price is solely dependent on how good an entrepreneur pitch in front of an investor.

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