VALUATIONS

If you plan to raise investment into your company, valuations are always a tricky area, especially with pre-revenue businesses with no track record.  There are a range of methods, all with merit and which can be used in combination.

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1) NEGOTIATION - The first method usually involves a negotiation between yourself and your potential investors.  You will know how much you need to raise from your forecasts and the investor will want to know what share of your company you will sell.  A value can be based on comparative businesses in your sector and on the strength of:

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   a) You and your team

   b)Your product

   c) Your financial forecasts and the research underpinning them

   d) Your market and your point of difference from your competitors

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You may value your company at say £500K and the investor at £300K.  The deal struck will be over to your ability to make your case and vice versa for the investor.

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2) EBITDA - A second and more figures-based method is to calculate your EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).  You will see our description of EBITDA in our Glossary of Accounting Terms where we describe it as a pure form of net profit which you can use for valuations.  The link below gives you the multipliers for your industry and you apply that to your EBITDA number over your 3-year forecast.  This will give you a comparative valuation backed up by other companies in your sector.  You can project your figures forward for up to say 6 years by basing it on your 3rd year EBITDA figure.  

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Note - Amortisation is the depreciation of intangible assets such as Goodwill and Intellellectual Property

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The figures in the table below are purely a guide and you can enter your own based on your own Business Plan forecasts and selecting the multiplier for your sector.

 

EBITDA Multiples by Industry | Equidam 

https://www.equidam.com/ebitda-multiples-trbc-industries/

 

3) Where you have access to longer term forecasts of up to 6 years you can use a combination of EBITDA, Net Present Values and Discounted Cash Flows.

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EBITDA Multiplier Table

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