How to price (place a value on) your company - view tip
The value of a company can be perceived differently depending on the type of buyer - view tip
Why should you do a business valuation even if you are not selling your business? - view tip
Calculate an estimated company valuation using two valuation parameters - view tip
#5 What does the business valuation look like? - view tip
#6 What buyers see when pricing a company - view tip
#7 How lenders value a company - view tip
#8 Why use a 3rd party valuation? - view tip

### Valuation Tip #4

Calculate An Estimated Value

##### Company Valuation Using Cash-Asset Position

 Pricing Formula: Take the value of your assets minus your account receivables (the value should be after you have re-casted your financial statements) Formula: Sum(1) = asset value - current acct receivables Add your net asset value to your 1-Yr. cash flow (use the most recent year's cash flow position) Formula: Sum(2) = Sum(1) + one year's cash flow Now take the cash flow and multiply it by 3 Formula: Sum(3) = one year's cash flow x 3 Add Sum(2) and Sum(3): Formula: Sum(4) = (net asset value + cash flow) + (cash flow x 3) Divide Sum(4) by 2 Add in the value of the accounts receivables Formula: Sum(5) = (Sum(4) / 2) + (Accounts Receivables) This will give you an approximate value of the business. See calculation example below.
 Example: Asset Value \$84,000 Accounts Receivables \$15,000 Cash Flow \$45,000 Step 1: Asset Value - accounts receivables \$69,000 Step 2: Sum the asset value + cash flow \$114,000 Step 3: Multiply cash flow by 3 \$135,000 Step 4: Sum Steps 1+2 \$249,000 Step 5: Divide Step 3 by 2 \$124,500 Step 6: Add back in the accts. receivables \$139,500 Approximate Value of the Company \$130,000-\$150,000 Note: This is an approximate valuation based on asset value and cash flow position. A true value is derived by completing a professional valuation.

##### Setting Price by Weighted-Cash Flow

This is a common practice used in the industry to get an estimated company valuation. It is based on the weighted cash flow position of the company over a 2-yr, 3-yr or 5-yr average.

You simply "weight" the current and priors year cash flow position to derive the company's overall cash flow that is multiplied by an industry multiple to derive overall value.

 Pricing Formula: Formula 2-Yr Avg: Cash Flow = (2014 cash flow*2 + 2013 cash flow*1)/3 Formula 3-Yr Avg: Cash Flow = (2014 cash flow*3 + 2013 cash flow*2 + 2012 cash flow*1)/6 Formula 5-Yr Avg: Cash Flow = (2014 cash flow*5 + 2013 cash flow*4 + 2012 cash flow*3 + 2011 cash flow *2 + 2010 cash flow *1)/15 Find the industry multiple Formula: the industry multiple is determined by similar companies that have sold or that are currently on the market Take the cash flow average and multiply it by an industry multiple Formula: Sum(2) = weighted cash flow X industry multiple See calculation example below
 Example: Cash Value 2014: \$175K 2013: \$188K 2012: \$167K 2011: \$171K 2010: \$146K 5-Yr Weighted Average \$174.4K 3-Yr Weighted Average \$178K 2-Yr Weighted Average \$179.3K Industry Multiple 2.5 Step 1: 5-yr weighted avg X multiple \$436,000 Step 2: 2-Yr weighted avg X multiple \$448,250 Approximate Value of the Company \$435,000-\$450,000 Note: This is an approximate valuation based on asset value and cash flow position. A true value is derived by completing a professional valuation.