Valuation Techniques for Small Businesses

Raising Capital, Funding, Valuation


Valuation Techniques for Small Businesses

Small business owners have limited financial resources but most ventures need money to grow. One of the best ways to get this financial assistance is to look for investors willing to offer some money in exchange for a stake in the business and a share of the profits.

However, if you want to get investors, you need to determine the value of your business and that can be complicated. Most people are emotionally invested in their business and don’t like to attach monetary value to it. Here are some ways in which you can come to the right decision.

Asset Valuation
This is perhaps the most solid and practical way to determine the value of your business. It can limit the amount you might gain from your investors, but they’ll be more willing to actually invest if you calculate the value by determining the price of your assets.

There are four types of asset your business might have and they include physical property like the company building, stores, computers, equipment, inventory, etc. You can also value intellectual property like trademarks, patents, and incorporation papers.

The valuation will also increase based on your principal team members and employees. If you have an established and well-known employee in your team, it might increase investor confidence and the likelihood of success. Customer contracts and establishes customer base is also included in the value.

Market Valuation
This valuation is largely based on speculation on the impact your company would have on the market. This isn’t a very concrete way to determine valuation, but it might get you higher investments. You can determine this based on the potential size and growth of your target market as well as competition and obstacles. For example, if the target market is large and trending, your business will have higher value. However, if the competition is stiff and there are many obstacles in your way to gain entry into the market, your business would have lower value.

Income Valuation
This technique to calculate the value is used by financial analysts. They take your business’ future cash-flow into consideration and discount it by a certain percentage to arrive at the value. In the case of start-ups and new businesses, this discount can be 30% to 60%, which is quite steep.

A successful small business would require some investment in the first few years to expand its sphere of influence and incorporate new technologies and products. Valuation is the best way to do it, especially if you find the right investor.
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Business & Marketing Tips: Valuation Techniques for Small Businesses
Valuation Techniques for Small Businesses
Raising Capital, Funding, Valuation
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Business & Marketing Tips
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