As an entrepreneur, getting a handle on the financial health of your company is just good business, whether you’re looking down the road at a buy-out or you’re planning for future growth. In order to maximize the value of a professional business valuation, however, you should understand what aspects of your day-to-day business influence the figure attached to its worth. And for startups that are not yet regularly turning a profit, your valuation will be influenced by several factors.
They Like You
When Sally Field accepted her Oscar for Best Actress in 1984, she uttered the often (mis)quoted line, “I can’t deny the fact that you like me, right now, you like me!” If you can apply this line to your business, it will influence your startup’s valuation. Simply put: Do you have paying customers? High-volume traffic to your website says people are intrigued, but it’s more important that the people who visit your site or your shop follow through with a purchase.
They Like You Enough to Come Back (and Bring Friends)
Whether or not interested shoppers are converting to customers is just the beginning of the conversation. Are those same shoppers-turned-customers returning to buy more? Are new shoppers finding their way to you or are your sales flat? Your company’s worth will be influenced by whether or not you’re finding traction in the market. Likewise, whether the growth is steady or erratic may also be a consideration.
You’ve Got Competition (or You Don’t)
Your business is not operating in a vacuum and as such, its worth is influenced by outside factors as well. What does your competition look like? A crowded market can limit your ability to collect higher margins on your sales. An empty market may be a red flag that there’s not quite the demand you think there is. This isn’t to say that either end of the spectrum is inherently bad. Your company could provide a fresh take on an established hot space and take the market by storm. Conversely, you can be the next big thing everyone wants to copy. Both of those possibilities, however, also mean a lot of hard work to overcome unique challenges, and in the short-term, it could influence your business valuation.
Just as your competition can influence your company’s worth, so can your potential client base. What does your community look like? Is your market growing or shrinking? Do your potential customers have disposable income? As noted above, they may like you and like you enough to come back, but does the economic forecast for the community indicate that their wallets will allow them to continue?
Proof is in the Profits
Are you making money? Once the revenue starts to flow, are you generating a profit? How is your cash flow? Simply making sales is not the same as making money. Your business valuation is influenced by whether or not you are (or have the potential to) post profits and maintain a healthy cash flow.
You (and Your Partners) Matter
When you’re seeking loans or investors for a business without an established track record, your experience may matter more than you realize. Investors and lenders will consider what you are bringing to the table. Are you a serial entrepreneur with a track record of successful businesses under your belt? Are you splitting your time and attention between your new venture and a full-time job? Do you have a reputation and experience in the industry? Do you have a team of partners – and what do their backgrounds look like? These are all factors that could influence the perceived value of your business.
Just the Tip of the Iceberg
Of course, the complete picture of your company’s health is dependent on a more comprehensive evaluation that takes into account these and other factors. An expert team like Peek Advisory Group can provide you with a detailed financial and operational assessment to help truly understand where your business is now and where it can go.
We offer three variations of business valuation depending on your goals. You can also get insights into the key areas noted above by completing a free online assessment. In five minutes or less, answer 15 questions and receive a 10+ page report on the areas in which your business excels and where it could use some work. Go here to start the quiz!