Business Startup Valuation Calculator

This valuation calculator uses the VC (Venture Capital) method. The VC method is one of the most common approaches among financial practitioners in the private company market. 

The VC method, or Venture Capital method, is a valuation technique used by investors to estimate the potential value of a company based on future cash flow projections. The method involves estimating a business’s potential future cash flows, applying an expected return rate to those cash flows, and then arriving at a present value estimate.

The process begins by estimating a business’s expected future cash flows, typically five to ten years, over a specified period. The projected cash flows are then discounted back to their present value using a rate of return that would satisfy the investor and reflect the level of risk associated with the investment. The return rate is typically higher for riskier investments and lower for less risky ones.

The valuation generated by the VC method represents the valuation investors would need to invest in you today, based on the returns they need to receive from the investment in 3-5 years, assuming your medium to long-term growth projections come to fruition.

A Business Valuation Calculator is a powerful tool that enables business owners and potential investors to estimate the value of a business. This tool can help business owners determine the worth of their business, which can be beneficial when making critical decisions like securing funding or selling the business.

The calculator requires financial and non-financial data inputs to generate a valuation report. This report provides insights into a business’s financial health, profitability, and growth prospects. Business Valuation Calculators use various methods to calculate the value of a business, such as asset-based valuation, market-based valuation, and income-based valuation.

It is important to note that while Business Valuation Calculators can provide quick and easy estimates of a business’s value, they should not be relied upon solely for making critical business decisions.

It is essential to seek the advice of a professional business valuator who can provide more in-depth analysis and interpretation of the business’s value. Business Valuation Calculators can be a helpful starting point for understanding the potential value of a business. Still, they should be used in conjunction with other methods to make informed business decisions.

There are several types of Business Valuation Calculators, and each uses a different method to estimate a business’s worth. The three main types of Business Valuation Calculators are asset-based, market-based and income-based.

Asset-based valuation

Asset-based valuation calculates a business’s worth by assessing the value of its assets and liabilities. This method looks at the book value of the assets, which is their original purchase price minus depreciation. It can also look at the fair market value of the assets, which is what they would sell for on the open market. This type of calculator is useful for businesses with significant tangible assets, such as manufacturing businesses.

Market-based valuation

Market-based valuation looks at the value of similar businesses in the same industry to establish a benchmark for the valuation. This method looks at the selling prices of other businesses in the same industry and compares them to the business being valued. Useful when there are many similar businesses in the same industry.

Income-based valuation

Income-based valuation calculates a business’s worth based on its projected future cash flows. This method assumes that a business’s value is equal to its future income streams, discounted to its present value. Good for businesses with a strong revenue stream or those in high-growth industries.

Business Valuation Calculators typically require inputs such as revenue, profits, assets, liabilities, and other relevant financial and non-financial data to generate a valuation report. These inputs are used to estimate the business’s worth using one or more of the valuation methods mentioned above.

With our business valuation calculator, we use the VC method. There are four figures required as input in order to calculate your business valuation:

1. Your projected 3-5 year EBITDA
   It’s most common to use your Year 3 EBITDA – but if this is negative, use your first positive year. If you do not have a financial forecast, you can use our free financial projection template to get started.
2. Your industry EBITDA multiple
   An EBITDA multiple is an industry benchmark providing an average ratio between the EBITDA and sales value of recently acquired companies in your industry. These multiples vary by sector. You can find out your multiple via our EBITDA Multiples by Industry reference guide.
3. Investor Expected Return (ROI)
   This will vary based on the type of investors you’re pitching to and is expressed as a multiple of their initial investment. Typically Angel Investors and Early Stage VCs expect a  10x – 30x return, while Growth Stage VCs expect a 100x return.
4. Capital Requirement
   This is the amount of money you are hoping to raise. Knowing this allows the calculator to determine your pre-money and post-money valuation. This is an important distinction to make to investors. Typically founders pitch their pre-money valuation.

Knowing the value of your business is critical for making informed decisions that can affect its future because it provides insights into the business’s financial health, profitability and growth prospects.

Knowing the worth of a business is essential when it comes to securing financing or selling the business. For example, when seeking financing, potential lenders will want to know the value of the business to determine the risk associated with the loan. Potential buyers or investors will want to know the value of the business to determine if it’s worth the investment and if they can feasibly achieve a return.

Understanding the value of your business can also help you make strategic decisions about growth and expansion. For example, if a business is undervalued, owners may decide to invest in marketing or other growth strategies to increase its worth.

It can help owners determine how to transfer ownership to family members or other stakeholders while minimising tax implications.

Understanding your valuation can also help you identify areas where the business can improve its financial performance. 

Ultimately, by understanding the value of your business and its strengths and weaknesses, you can make informed decisions about where to invest your resources and how to maximise profits.

We love to help new and small businesses. That’s why we’ve created the following articles and tools:

READ: How To Value Your Startup And Decide How Much Equity To Give Away

READ: Startup Valuation: Five Ways To Credibly Value Your Startup For Investors

READ: What Is My Startup Valuation, And How Do I Justify It To Investors?

READ: Top 5 Financial Projection And Valuation Tools For Startups

READ: Startup Value Proposition: How To Write One In Five Simple Steps

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