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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

Use this simple but non-substantiated business valuation formula to value and price your business:

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.

How much is your business worth? Contact us

Contact us

for a FREE consultation

Krayton M Davis
Executive Director, Novars Group, Inc
1-804-527-1103

or e-mail your inquiry to:
kdavis@novarsgroup.com

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