Small business valuations

There are many ways to value an existing company. Many startups are no more than an idea, some market research, and half of a team (hopefully with some experience). If you think about it for long enough, these companies have no proven value–$0! What some do have, however, is potential value; and fortunately that is something some investors are willing to pay for. (Not to be the pessimist, many startups have much more than stated above, including certain milestones and revenue, which could constitute proven value).

So how is a startup valued? It is important to have proper financial projections with enough information (verifiable data) to allow investors to glean there own valuation data. It is also important to come up with your own valuation on your company to start the negotiation. Realistically, your valuation should be less than $3 million…but that’s the point. It is a best estimate!

The true value of the company falls out in the negotiation. If the investor tries to take too much, you’ll walk away. If you ask for too much, the investor will lose interest and go with one of the other many options he/she has. In the end, if you do settle on a price, there is your valuation.

Just as in life, the value of potential is worth the perception of the parties involved. Barring obvious exceptions, transactions (in all forms) do not occur if the costs and benefits to the various parties are not perceived as agreeable enough.

Our process leverages best practices to help small businesses reinvent their strategic planning processes. We help provoke questions and facilitate conversations rather than create documents, rely on facts to make key decisions, and involve those expected to implement the strategy in the planning process. We help small businesses decide where to focus and how to allocate resources.