Spreadsheet: c869c35b-5988-4cca-a1e1-bc9aeb7f4273
Sheet: Sheet1

Unnamed: 0 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | Business Valuation Tool
Important note
 | There is no definitive valuation methodology for a business, since most models rely upon various subjective assumptions.
 | Whichever valuation model you use, or assumptions you make, ultimately the value of the  business comes down to what both parties agree it is worth.
 | Start-up businesses (especially pre-revenue ones) can get very carried away with high business valuations. Think - would someone buy what you have created so far at this valuation? - probably not.
 | Usually, you will show the valuation of the business as a range, by changing the key assumotions in the model.
 | There are various models which can be used to value a business.  Outlined briefly below are some of the more popular models together with a brief explanation on each.
Net Asset Valuation  Model
 | This is the most basic form of valuing an existing business, which looks at the Net Asset Value as shown on the balance sheet i.e. all assets of the business, less liabilities.
 | Comment | The most basic model, but it does not account of the future earnings capability of the business and its assets
'Sweat Equity' Model |  |  | (see other worksheet)
 | The value of the business corresponds to the total equity injected, plus an amount for the entrepreneur's time taken to develop the idea.
 | Comment | A fairly basic valuation model with relatively few assumptions and variables.
Price / Earnings Model |  |  | (see other worksheet)
 | This model is useful to estimate a valuation at the exit point e.g. after 3-5 years, to provide an estimate of the investors' return on investment.
 | For a quoted company, the price/earnings ratio is the quoted share price of the company divided by the (usually 1 year forecast) earnings per share.
 | Find an appropriate P/E ratio by (1) comparing your business to similar quoted businesses (2) discounting the ratio (sometimes significantly) to reflect the reality that your business is worth less than a quoted counterpart.
 | Once you have established a P/E ratio, you multiply the business’s projected annual net profit after tax (earnings) by this figure, in order to assess the value of the business (price).
 | For example, if the P/E ratio is 6 and your projected earnings are £100,000, your P/E valuation for the business is £600,000.  This assumes that the future earning of the business are £100,000 per year.
 | Comment | Determining a P/E ratio for your business can be a very subjective exercise.
[NAME] (DCF) Model
 | An investor purchasing shares in a business is, in affect, purchasing a share of the business’s future cashflow (in the long run broadly represented by profits after tax)
 | The DCF model discounts this cashflow back to a single figure, to derive a value for the business, using an assumed discount rate.
 | The discount rate should reflect an investor's desired investment return over the life of the investment
 | Comment | Again, the choice of discount rate is crucial and highly subjective
Sales and Profit Multiples
 | A simple method which multiplies the sales or profits at exit by a multiplier.
 | The multipliers are based on industry standards or sales of comparable businesses.
 | Comment | A good way of testing the reasonableness of other valuation methods, although again the multipliers are subjective.
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