Valuations of start up businesses
It is possible to attach a value to a start-up business because it is largely assessed on projections of future earnings rather than past results.
Often the objective when valuing a start up operation is not sale or restructure but securing investment. To achieve this goal it is necessary to demonstrate three things:
- The investor won’t lose their initial investment
- The investor will actually make money
- The investor can understand how much money could be made over a given period of time so they can assess just how long their investment will take to realise a satisfactory return
The minimum documentation you would need to provide is financial projections over the next 4 years (i.e. forecast/budgeted Profit and Loss)
Other documents that will assist with the valuation of your start up business should cover a minimum period of 3-5 years and include:
- Business Plan incorporating
- Detail of your offering, be it a service or a product, and where you are at in the development stage
- Industry segment review and analysis identifying your sustainable competitive advantage and an appreciation of the competitive landscape
- Sales/Distribution plans
- Marketing plans
- Any contingency plans you may have developed in response to identifiable threats
- Any dependencies that may exist
- Legal Structure
The Bizval Insight Paper on Start-Ups and Business Valuations is available for free. Register Now.
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