Tag: Valuation

Put a price tag on your business: A guide to business valuation – Canada Business Network #best #business #cards

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Put a price tag on your business: A guide to business valuation

If you want to sell all or part of your business, you need to have an idea of its value. This information will help you understand the different approaches to business valuation, but you may want to seek professional guidance and advice. Prospective investors will also assess its value when they consider your proposal.

The process of determining the value is called valuation. You and the buyer or investor need to determine what you feel is an appropriate business valuation because it will be the basis for negotiating:

  • How much of your business the investor or buyer will purchase
  • How much the buyer or investor will pay (the price of the business or of its shares)
  • The return the buyer or investor can expect to earn

Ways of valuing a business

Valuation is not an exact science, and there are different ways of valuing a business. Each of these methods is based on different assumptions and financial information, which typically results in a different value for each method. For instance, you could base a valuation on the assets of a business (how much it owns) or by taking into account projected revenues or cash flows. Investors generally prefer methods based on cash flows. It s important to know about a variety of methods because they can be useful as benchmarks to check the validity of the value and the price you determine.

Earnings and cash flow-based methods:

  • Discounted cash flow
  • Going-concern value

Discounted cash flow

From the investor s perspective, this is usually the most accurate and effective way to estimate a business value because it is based on future cash flows. These cash flow figures reflect the amount of money that is estimated to come into the business and will ultimately determine the investor s return on investment. The discounted cash flow method is used to answer three critical questions:

  • Value: How much is your business worth today, based on what it will earn in the future?
  • Rate of return: What is the buyer s or investor s expected rate of return, given the amount invested and your business financial projections?
  • Equity share: How much equity will the buyer or investor receive for their investment?

The discounted-cash-flow method is often preferred because it can be more accurate than other methods. Its accuracy and complexity are due to the fact that it:

  • Uses cash flows: It takes into account the projected ups and downs of revenue over a period of time.
  • Discounts the cash flows: It adjusts the cash flows by a rate that is acceptable to the investor to account for risk and the time the investor must wait for a return.
How it works

In this method, cash flow predictions are discounted, or reduced, to adjust for the risk the investor faces and to make up for the fact that the investor could invest their money in something else.

Investors are looking to be compensated for their risk, and their benchmark rate or “discount rate” will adjust for the value of money over time. They will choose a discount rate and compare your proposal against that rate.

Advantages and disadvantages

The discounted cash flow method allows values to be estimated even when your cash flow is fluctuating. A start-up or new venture may expect to lose money in the first years and then make money in later years. These changes in cash flow are taken into account by the discounted cash flow method.

If you use this method, keep in mind that:

  • Its accuracy depends on the accuracy of your cash flow projections. That is why your financial data and assumptions are critical.
  • It is a complex process, so you may require professional guidance.
  • It can give you detailed estimates, but it is important to remember that business valuation is not an exact science your numbers will be based on assumptions and predictions of future performance.
Value: How much is your business worth today?

Let s say financiers are considering an investment in your business, but plan to take their money out in five years. To them, your business is worth today what it can earn during those five years, plus their share of the value of the business at the end of the five years. However, future cash flow numbers and the future value of the business are unknown. The discounted cash flow method applies adjustments or “discounts” to account for those unknowns.

Using this method, the value is the total of the cash flows, adjusted or discounted, plus the value remaining (or residual value), also discounted.

Rate of return: What rate of return will the investor expect?

Investors want to calculate their rate of return. To do that they must compare the amount of the investment to the amount they will earn at the end of the investment period. But how can they know what they will earn in the future? Again, they must use the discounted cash flow projections to estimate the future value of their investment. To do so, they will need to:

  • Estimate the cash flow in the final year
  • Estimate the value of the business based on the cash flow
  • Calculate the final value of their share in the business
  • Determine their rate of return
Value, return and exit strategy

The method used to calculate values and rates of return depends on the specific exit strategy used. Commonly-used methods include going-concern value, book value, and liquidation value.

Going-concern value

The going-concern value method calculates your business value based on its capacity to produce a stream of cash flow in the future. The greater the cash flow your business generates in the future, the higher your business value today.

How it works

The going concern value, like discounted cash flow, compares the current investment to the future receipts (cash inflows). This method uses the revenues of previous years to project future revenues, and it assumes those revenues will not change.

Book Value

This value is the net worth, or shareholders equity, of your business as shown in its financial statements. At its most simplified, subtracting your liabilities from your assets will give you your business net worth or book value. Book value can be described as the historical value of an asset that, at a given time (the day it was purchased), represented the economic or market value of the asset, less its accumulated depreciation.

How it works

To determine the book value, subtract your liabilities from the value of your assets. The difference gives you your net worth or shareholders equity. In practice, book value is seldom used in the process of securing venture capital, although it can be a realistic approach to measuring a small business net worth.

Liquidation value

A liquidation value is assigned to a business being sold in order to satisfy its creditors. Tangible assets, such as land, usually have a liquidation value close to their market value. Inventories and accounts receivable, on the other hand, are usually valued at less than what is shown in the books.

How it works

To determine the liquidation value, all assets are assigned distressed values, and all debts are totalled at book value. Most assets sold under duress are discounted from their fair market value. The difference between the distressed value of the assets and the actual or book value of the liabilities is referred to as the liquidation value.

The liquidation value doesn t reflect the real worth of an asset or a business; in most cases, it is substantially less than the market and book values. This method is typically used only if a business is in serious financial trouble.

Should I seek a financial advisor for help with valuation?

Business valuation is a complex task, and a financial advisor with experience in business valuation can be an invaluable asset.

A professional valuator can:

  • Provide the experience needed to accurately determine the value of your business
  • Offer an objective view of your business worth
  • Give investors more confidence in the credibility of your valuation

Conclusion

There is a saying in the venture capital industry: “The value of a business is only what someone is willing to pay for it.” In other words, the market, and your ability to attract investors and negotiate with them will determine the value or selling price.

Remember that many factors affect the value of your business. Seeking professional assistance can help you calculate an accurate value for your business.

Learn how to determine the value of your business and find ways to increase it.

What is a fair price to pay for a business? Read this article to learn how to estimate the value of a business.

Enlist the help of an expert who can quantify the worth of all, or part, of your business or its securities.

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10 Business Valuation Calculators To Gauge Business Value #entrepreneurship #ideas

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10 Business Valuation Calculators To Gauge Value of A Business for Sale

Believe it or not, there’s no right or wrong way to work out how much a business is worth. Experts use loads of different valuation methods and the number those calculations come up with will vary greatly depending upon the criteria set forth.

That being said, if you know exactly what it is you value in a business, it’s not hard to work out a ballpark figure. After all, nobody in their right mind would pay for an existing business without knowing what it’s worth.

To help you get started, here are some of the Web’s top free business valuation calculators.

10 Business Valuation Calculators

1. CalcXML

CalcXML has been providing a wide range of financial tools to small businesses for a while now. And the company’s valuation calculator is a tried-and-tested model.

It’s a simple tool designed to give potential buyers a quick snapshot. It takes all of the basics into consideration, including: annual earnings, excess compensation and level of business risk. Best of all, it only takes a few minutes.

2. EquityNet

EquityNet is one of the globe’s leading pioneers in crowdfunding. Established in 2005, the platform works to connect thousands of entrepreneurs with investors of all shapes and size and has already helped start-ups across the globe raise hundreds of millions in equity, debt and royalty-based capital.

As part of that mission, EquityNet provides a valuation calculator backed by real market data gathered from over 3,000 business across North America. That enables you to weigh the value of a business against potential competitors which is a factor some analysts often overlook.

EquitNet also provides free calculators to work out a company s profit margin, cash flow and startup risk.

3. ExitAdviser

ExitAdviser is an online support service that enables business owners to connect with potential buyers. In line with that service, ExitAdviser plays home to an extremely quick business valuation calculator designed to give potential buyers quick quotes.

To get an estimate, buyers simply need to enter net profit from a company’s most recent financial year and forecast its sales growth. That said, there are plenty of more advanced input options to help generate more accurate valuations.

4. BizEx

Like most free valuation calculators, BizEx hosts a platform based upon the ‘Multiple of Earnings’ method. But their calculator is far more advanced than most of the free models you’ll find kicking about on other sites.

By including an in-depth breakdown of a company’s discretionary and multiple earnings, you’re able to create instant valuation ranges depending upon a range of variables. Afterwards, you’re given the option to talk these numbers over with a broker if you’re so inclined.

5. Bridge Ventures

The Bridge Ventures calculator is designed to create an estimated market value for a company based upon a diverse set of attributes. Technically speaking, this calculator is only meant to be used for small businesses with revenues of under $2 million.

It’s worth noting this calculator is most compatible with Google Chrome, as there are a few unwanted kinks when opened on Internet Explorer. That said, it’s a simple calculator that renders quality results.

6. Hadley Capital

Hadley Capital ’s business valuation calculator is slightly different, in that it applies a multiple of EBITDA to determine the Enterprise Value of your business. In general, a small business will usually trade for around three or four times its normalized EBITDA. That said, the multiple will slide dramatically based upon a variety of characteristics specific to your business.

This calculator understandably places particular emphasis on your annual EBITDA, annual capital expenditures and how much of your revenue comes from top customers.

7. John Hancock Life Insurance

John Hancock has been around for a long time. As such, you’d expect the company to have worked out a pretty reliable way in which to tally up the value of a business.

First-time buyers may be inclined to check out this calculator, as it includes an incredibly useful glossary of terms designed to cut through all of the meaningless financial jargon associated with business valuations. It also clearly explains all methodologies involved in calculating your valuation.

8. MassMutual Financial Group

MassMutual is an all-encompassing insurance provider that represents over 13 million clients across the globe. Consequently, the company values user experience far more than some of the industry’s smaller websites. Its business value calculator is no exception.

This user-friendly calculator very clearly and concisely walks you through every step of the valuation process in order to work out a decent estimate in as little as two minutes.

9. HelpSME

HelpSME is a great resource for small businesses in need of tutorials and advice. That’s why the site offers an easy-to-use valuation calculator using the Net Present Value (NPV) method. This approach uses a company’s future cash flows to try and work out how much it’s worth in the here and now.

HelpSME’s calculator also includes useful guides designed to help you wrap your head around the value provided.

10. National Life

National Life is an all-encompassing collective of financial services companies, and its online valuation calculator draws upon that power in order to generate fairly well-informed market estimates.

Similar to HelpSME, National Life’s calculator finds the worth of a company by looking at the present value of its expected future earnings. It places particular consideration on a company’s lack of marketability and excess compensation.

In the same way that no two valuations are alike, it s crucial to bear in mind that this list is by no means exhaustive. There are loads of brilliant valuation calculators online that you can use in order to generate a snapshot of how much a business may be worth.

Just remember: these free business valuation calculators aren t always accurate. At the end of the day, it s up to you to do your homework in order to ensure you ve put in (or accepted) the best possible offer for an existing company.

Nash Riggins is a Staff Writer for Small Business Trends and an American journalist based in central Scotland. Nash covers industry studies, emerging trends and general business developments. His writing background includes The Huffington Post, World Finance and GuruFocus. His website is NashRiggins.com.

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Business Valuation – Discounted Cash Flow #business #brochures

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Financial Calculators from Dinkytown.net

Business Valuation – Discounted Cash Flow

Business valuation is typically based on three major methods: the income approach, the asset approach and the market (comparable sales) approach. Among the income approaches is the discounted cash flow methodology calculating the net present value (‘NPV’) of future cash flows for an enterprise. As an alternative to the more abbreviated income capitalization approach, this methodology is more relevant where future operating conditions and cash flows are variable or not projected to be materially consistent with current performance levels.

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For more information about these these financial calculators please visit: Dinkytown Financial Calculators from KJE Computer Solutions, LLC

The estimated Net Present Value (NPV) of your business is NPV_VALUE.

Your cash flow was estimated in two parts. First from your cash flow statement, and secondly from projecting future cash flows assuming a growth of EXPECTED_ANNUAL_GROWTH. We first calculated your estimated cash flow for year one from your inputs. An additional PROJECT_ADDITIONAL_YEARS years of cash flows were calculated assuming a EXPECTED_ANNUAL_GROWTH annual growth (for a total of PROJECT_YEARS). Each year’s estimated cash flow was then discounted by WEIGHTED_AVERAGE_COST_OF_CAPITAL (your weighted average cost of capital) for the number of years until the cash flow would be realized. The sum of all of your future discounted cash flows is the net present value of your business. **GRAPH**

What else can I do to increase my valuation?

  • Increase your operating profits:
    You can directly impact your valuation by becoming more profitable. Increased efficiency and lower operating expenses can have a dramatic impact on your business’ valuation. Even relatively small increases in profitability can have a dramatic impact on your valuation.
  • Reduce inventory and accounts receivable:
    By reducing your inventory and accounts receivable, you can decrease the amount of capital that is tied up in your business. The net change directly affects your valuation.

  • Reduce your taxes:
    Very much like reducing your inventory, reducing your tax burden can directly impact the value of your business. A business that creates effective tax shields can be worth substantially more than one that doesn’t consider this important variable.

  • Effective capital expenditures:
    Target your capital expenditures to projects that increase your growth rate, or increase your profitability. While capital expenditures reduce your near-term cash flow, effective investment in your business can have a positive impact in your valuation.
  • Your cash flow statement:

    Business Valuation – Discounted Cash Flow Definitions

    NPV Value of your business This is the value of all of your future cash flows discounted in today’s dollars at your Weighted Average Cost of Capital (WACC).

    Expected annual growth This is the rate you expect your business to grow. This rate is only used on years 2 and above to estimate your future cash flow.

    Weighted average cost of capital (WACC) This is the cost of capital, or the interest rate, your investors require to put money into your business. Unless you are a Fortune 500 company with excellent business credit scores, this rate should be at least 12% to 25%. For small businesses that rate can be much higher.

    Years of cash flow to include This is the number of years that the projection will include in the value of your business. For example, if you include 100 years (the maximum) we calculate the present value of all future cash flows generated for the next 100 years into your business’ value. Entering a high number would assume that the business would continue with the current projections for that entire length of time. You may wish to reduce this projected period if you have a known end date for the business cash flows, or to make a more conservative estimate of the value.

    Operating profit This is your total profit before interest and taxes. This is often called Earnings Before Interest and Taxes or EBIT.

    Interest expense Total interest expense for the year.

    Interest income Total interest income for the year.

    Income taxes Total income taxes paid for the year.

    Depreciation and amortization If you had any depreciation on equipment or buildings enter those amounts here. They are added back into your cash flow.

    Change in accounts payable If you had a net change in your accounts payable, enter the change here. If you had an increase in accounts payable, your cash flow goes up. If you had a decrease in your accounts payable, your cash flow is reduced.

    Change in inventory If you had a net change in your inventory, enter that amount here. If you are holding more inventory your cash flow is decreased.

    Change in accounts receivable If you had a net change in your accounts receivable, enter that amount here. Reducing your accounts receivable by collecting money owed more quickly can increase your cash flow and your valuation.

    Other net change Enter any other net change in other assets or liabilities that impacted your cash flow for the period.

    Capital expenditures This is the amount you spent on capital equipment and buildings that you were not able to expense for the period. If you were able to expense the expenditure, it is already accounted for in your EBIT.

    Additional investment income Enter any other investment that increased or (decreased) your cash flow for the period.

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    KJE Computer Solutions, LLC’s information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. More Information





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    Online Business Valuation Calculator #fox #news #business

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    Business Valuation Tool

    Your Online Business Value Calculator

    Do you know the value of your business? Would you know where to start in calculating its worth? So you can set a reasonable Asking Price.

    ExitAdviser’s business valuation approach gives you the confidence to defend your Asking Price in front of any prospective buyer. That’s because it uses Discounted Cash Flow (DCF), the most widely respected method of valuing an ongoing, profitable business. It takes the expected future cash flows and “discounts” them back to the present day, to give a well-argued valuation.

    Custom Business Valuation

    Not quite confident with the results? ExitAdviser’s appraisal team can provide you with a custom Business Valuation Service

    It’s well worth taking time to get your valuation right. Be sure to use actual financial data and considered forecasts that can de defended with rational arguments. For this reason ExitAdviser recommends that you take several attempts with the Business Valuation Tool until you feel happy with the result. Before setting your final Asking Price, compare the tool outcome with other valuation methods, including price comparison with other similar businesses listed on a variety of online business sale websites .

    Disclaimer

    Important Information. please read carefully before using this Tool.

    The Business Valuation Tool (BVT), whilst using a robust, standard method to produce a guideline business valuation, is not the only way to appraise a business. Before you settle on the final Asking Price for your Sale Memorandum and campaign Landing Page. you are strongly advised to compare your results from the BVT with results from alternative methods, such as comparison with similar businesses listed on a selection of online business sale websites. ExitAdviser takes no responsibility for the accuracy of the numbers you enter into the BVT, nor for any misunderstanding you may have about the way the BVT calculates business value, nor for the consequences of using valuations calculated by the BVT when deciding your Asking Price. If you are in any doubt about the most realistic value for your business, you are strongly advised to seek professional assistance from your Accountant.

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    Capitalization Rate – Business Valuation Glossary – ValuAdder #business #simulation #games

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    Capitalization Rate

    Definition

    A value, typically expressed as a fraction, used to divide a business economic benefit to arrive at the business value.

    What It Means

    Capitalization rate or Cap rate. is a divisor used to convert a single-point business economic benefit into the business value. The typical economic benefit used in business valuation is business earnings such as the seller’s discretionary cash flow. net cash flow or EBITDA.

    Note that the capitalization rate is the reciprocal of the business valuation multiple which is used by the Multiple of Discretionary Earnings business valuation method.

    Business Valuation using a Multiple of Earnings

    Capitalization rate equals earnings growth adjusted discount rate

    Capitalization rate is related to the discount rate through the following formula:

    In this formula Cap is the capitalization rate, Disc is the discount rate, and G is the expected annual long-term growth rate in the business earnings being capitalized.

    Similar to the discount rate. you can use one or more cost of capital models to calculate the capitalization rate.

    To estimate the capitalization rate, first build up the discount rate. estimate the long-term earnings growth rate G. then apply the formula above.

    Cap rate is used as one of the key inputs into the Capitalization of Earnings income-based business valuation method.

    ValuAdder ® is a registered trademark, ValuAdder logo and product symbols are trademarks of Haleo Corporation. Mac ® and OS X ® are registered trademarks of Apple, Inc. Windows ® is a registered trademark of Microsoft Corporation. All other trademarks are property of their respective owners.

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    Capitalization Rate – Business Valuation Glossary – ValuAdder #comcast #business #phone

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    Capitalization Rate

    Definition

    A value, typically expressed as a fraction, used to divide a business economic benefit to arrive at the business value.

    What It Means

    Capitalization rate or Cap rate. is a divisor used to convert a single-point business economic benefit into the business value. The typical economic benefit used in business valuation is business earnings such as the seller’s discretionary cash flow. net cash flow or EBITDA.

    Note that the capitalization rate is the reciprocal of the business valuation multiple which is used by the Multiple of Discretionary Earnings business valuation method.

    Business Valuation using a Multiple of Earnings

    Capitalization rate equals earnings growth adjusted discount rate

    Capitalization rate is related to the discount rate through the following formula:

    In this formula Cap is the capitalization rate, Disc is the discount rate, and G is the expected annual long-term growth rate in the business earnings being capitalized.

    Similar to the discount rate. you can use one or more cost of capital models to calculate the capitalization rate.

    To estimate the capitalization rate, first build up the discount rate. estimate the long-term earnings growth rate G. then apply the formula above.

    Cap rate is used as one of the key inputs into the Capitalization of Earnings income-based business valuation method.

    ValuAdder ® is a registered trademark, ValuAdder logo and product symbols are trademarks of Haleo Corporation. Mac ® and OS X ® are registered trademarks of Apple, Inc. Windows ® is a registered trademark of Microsoft Corporation. All other trademarks are property of their respective owners.

    Haleo guards your privacy and security. We are certified by VeriSign ® and Trustwave ®.

    Copyright © 2002-2016 Haleo Corporation. All rights reserved.





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