Valuing a business can be hard, especially for startups. How are you supposed to calculate the value of a company or a business who is still testing the waters? There’s hardly a cash flow or revenue that can be accounted for and assets may more likely be just ideas, concepts and the time invested in these. Have you seen a spreadsheet that includes ideas, concepts, time and effort? You can’t even count those.
Experts have all come to accept that valuating startups can be art, since there’s no right or wrong way to really do it. But at the same time, they have devised formulas that actually consider all the intangible efforts you have put into your company. Here are those:
- Implement a method
A certain start-up consultancy firm in San Francisco has come up with three methods on how to value startup companies. The first one: “cost to recreate” method. This one is all about calculating the costs spent in starting the business and finding the costs of recreating/replicating the same business if someone else does it. The costs usually include marketing, lease of space, recruitment of staff and expenses in materials and equipment.
Another approach, which is the “market multiple” method, employs the process of analyzing the spectrum of negotiations within the market. Basically, you’re valuing the company based on a business that is on the same industry.
The third and last method is the “discounted cash flow” method which involves a forecasting of the revenues and other expenses that factor out in the future cash flow.
- Deduct personal expenses
Due to the nature of startup companies, most of the time these businesses charge personal expenses to the business, but this tactic shouldn’t be done as a financial statement should reflect the company’s true value.
- Include nonfinancial items
Assets are not limited to monetary components. Don’t forget that the talents and experiences of the human resource, from owner to the last bit of a team, is considered value.
Startup companies can be pretty hard to put a value on. When you’re just starting, you won’t even know what you are worth. But with the above tips, you can land on a close estimate to the value of your business or brand.
If you’re having a hard time finding out the value of your business or company, let Aviso Valuation and Advisory find it for you. We are a team highly skilled professionals aimed to provide assistance in determining the true value of your company. Give us a call and we’ll have a talk soon enough.
Source:
entrepreneur.com
