Getting an accurate valuation of your business isn’t just about determining how much your business is worth; it’s about figuring out where your business stands today and what the potential is for the future. In this way, accurately valuing your business is an essential first step in growing your business and attracting investors who can help you do so.
Consider this advice from the members of to make sure you’re taking the right approach with your valuation Council for Young Entrepreneurs. Below, they share their best tips for determining your company’s valuation prior to fundraising and how it sets you up for future success.
Members pictured from left to right.
Photos courtesy of the individual members.
1. Seek the help of an expert
Don’t do your own appraisal – no one will respect it. There are development stores that do valuations when the company is pre-investment. Try them and compare them to the existing valuation ranges. Then take your first appraisal to a second group. The valuation is correct if they subscribe to the same or a higher valuation. If three or more entities get in at the same valuation, you’re good. A company’s valuation has no legal verification until the corporate income tax is filed with the federal government. Use Sales/EV and EBIT/EV multiples for the industry your company is in, as they are used to calculate your exit. If the sales and EBIT in your financials match the valuation, people will listen. – Sean Adler, GZI
2. Opt for an asset-based approach
The asset-based approach is one of the best techniques to determine the valuation of your company before any fundraising. First, you need to consider both the book value of your assets and their market value. Book value is your company’s equity or equity, including direct investments and retained earnings. Now you need to consider your company’s obligations. The difference between these two values is the amount of money you need to raise from investors – a clean calculation. This is where the asset-based approach delivers the exact information about your business you need for efficient fundraising. It also helps you perform market comparisons of your company’s net worth. – Candice Georgiadis, Digital day
3. Consider your churn rate
To determine your company’s pre-fundraising valuation, it’s important to look at several factors, including customer churn. Churn can give you insight into how well your company retains customers and whether your product or service is sustainable in the long run. If you have a high churn rate, it can be difficult to attract investors as they question the longevity of your business. However, if you have a low turnover, it shows that your business is stable and has growth potential. Ultimately, the decision on how to value your business prior to fundraising will come down to a number of different factors, but customer churn should be one of the most important considerations. – Sujay Pawar, CartFlows
4. Look at similar companies
Consider comparative valuation prior to fundraising. The first step is to find competitors that are similar to your company’s current valuation. The second step would be to investigate whether any of those competitors have recently been funded. The third step would be to estimate your potential funding. This is one of the methods companies can consider to explore the value of the business while raising capital. – Stephanie Wells, Formidable shapes
5. Determine your income and expenses
The first consideration when figuring out your valuation is your revenue, or how much money you bring in from clients and customers. This will tell you the size of the market you are targeting and can help you get an idea of the investment potential you have. Another important consideration is the cost of running your business, which includes both fixed costs such as rent and utilities, and variable costs such as salaries and marketing costs. With this information in hand, it’s easier to get an accurate picture of your profit margins and where there’s room for growth or improvement – and give you a more honest idea of how to value your business. – Syed Balky, WPB Beginner
6. Make use of your network
Whatever industry you’re in, networking is critical to success. Talking and socializing with other entrepreneurs will open many doors for you and provide you with vital information. Brush up on your social skills and talk to investors and fellow entrepreneurs who have no interest in your company. They are certainly objective. Dig deep and jot down their practicalities and observations about your company’s status and valuation. Some of them may have insight into what potential investors might think of your venture. Industry experts with similar valuation and fundraising experience can also provide input on how to increase the value of your business. They can also provide practical situation analysis for how much money you can raise based on your industry status. – Bryce Welker, Crush the GRE test
7. Use the Discounted Cash Flow method
A top tip for determining the valuation of your business prior to fundraising is to use a method called the Discounted Cash Flow (DCF) method. This method takes into account the time value of money, which means that money received today is worth more than money that will be received in the future. The DCF method is a reliable way to estimate the value of your company and its growth potential. The DCF method discounts each future cash flow by a percentage that reflects the investment’s risk, so that riskier investments have lower values than less risky investments. The DCF method is commonly used by financial analysts and investors to evaluate stocks, bonds and other types of investments. You can always hire professional help if you need to do it scientifically. – Kelly Richardson, Infobrandz
8. Consider a realistic time frame
When determining the valuation of your business prior to fundraising, make sure you have a realistic time frame in mind. Of course, every business has its own lifecycle, but it’s important to consider how much time you have left before your business matures. If you don’t have enough time, it might be better to wait until you get to that point before looking for money. – Brian Greenberg, insurance
9. Factor in product-market fit
The most important thing to focus on when determining your company’s valuation prior to fundraising is making sure you have strong product-market fit. This means that your product or service appeals to a large market and that there is a demand for it. Investors will be much more interested in investing in a company that has a product or service that is in high demand and has a large potential market. The next step is to assess the size of the market. This can be done by looking at factors such as the total population of your target market, the number of potential customers and the growth rate of the market. Once you have a good understanding of your product-market fit and market size, you can begin to come up with a valuation for your company. – Abhijeet Kaldate, Astra WordPress theme
