A company valuation can be performed for several reasons, but you might wonder who is actually using a valuation service for their business. First, let’s have a quick look on how financial services have changed over the past few years.
Financial services, like company valuations, used to be solely performed by financial experts. This was largely an expensive and time-consuming process. However, as accounting tools entered the market, entrepreneurs were enabled to perform some of these financial tasks themselves.
The same approach applies to valuation services today. For example, at Equidam we provide entrepreneurs with a Do-It-Yourself service to understand, manage and grow business value.
Valuations and Startups
The valuation of startups is a widely discussed topic. The reason is that traditional valuation methods (like DCF) don’t always apply to new ventures, and there is a debate as to which methods should be used instead.
In general, valuing a startup is more difficult than valuing a traditional business, as there is much more risk and less certainty involved; and a higher chance of an inaccurate valuation. However, startups should value their company to assess their potential.
With a valuation report, startup founders can validate their idea, and show potential investors and other interested parties the opportunities their business offers in the future.
This is where valuation tools come in handy. For example, at Equidam we use, contrary to traditional valuation services, five different valuation methods. Besides DCF, the technology also takes into account qualitative aspects of the business, like the experience of the founders, as these factors directly impact the value of a business.
When valuing startups, it is not only the financials that determine whether a startup will survive. There are many more things that matter and a good valuation tool will cover them all.
Small Business Valuation
Besides startups, small business owners also benefit from valuing their business on a regular basis. Often, these companies are established for a longer time, have possibly already raised funds, and are more stable. Logically, an established company’s motivation to use a valuation service is slightly different.
A valuation report is a perfect way to give investors, and other stakeholders, a quarterly update. A business valuation offers a clear and understandable metric to provide these parties with key information about a business. Moreover, a valuation report helps you, as a founder, to align interests within the company and improve internal management.