The more valuation calculations with detailed assumptions, the easier it will be to predict company value.
EXAMPLE: Management Prepared Projections
The assumptions can reveal how the company may achieve a higher level of performance and value. In a negotiation, an owner can push a higher value by emphasizing the reasons and circumstances that would create that higher value. One value number potentially does not tell you the real potential or value of the business. Two to five numbers give you a good range of values and provide solid data sets, to see where the value of your company may be.
Build Systems Early On
If you generate a solid cash flow, then your cash flow has value. If you create systems that translate tribal knowledge into workable processes, then there is a valuable addition. If there is a document of the process on HOW you generate sales and new customers, then there is added value. These will add cash flow and value. Without systems, your value decreases. Service and professional businesses can increase their value with systems.
Build Systems Early On.
Valuation is a lot more than hocus-pocus.
There is a lot of science and some art in valuation. The net cash flow (benefit stream) present value calculation is all science. The discount factor has science and assumptions. There is variability in the valuation calculations because of risk and assumptions.
There are three main valuation methods:
· Asset Method
· Market Method
· Income Metho
Each method above is valid with significant documentation for correct application and use. No one number is absolute. Thus, I generally provide up to nine ways to view a business value to provide the greatest perspective possible to help the business achieve their valuation objectives.
How to Increase your Business Value and Valuation Principles, helped Mihai Simon, President, ETG Security Systems, Denver , CO, to plan ways to raise capital (Business Plan Concepts), and improve his business operations from Dale Richards’ presentation on Business Valuation Principles – How to Increase Your Business Value, Financially, Operational and Strategically.