Let’s say you have a product idea and you’re looking for funding to start developing it. You’ve already got investors interested, but you have no idea how much your company might be worth – you haven’t even launched your solution yet. Check how to value a company for the first time in the article below.
How to Properly Evaluate a Company?
Of course, you want your company to be valued as much as possible, but it’s important to consider the long term. It may seem like you won if the value was inflated and the investor got a smaller share, but look at the consequences – you have a man on your board of directors who may become extremely unhappy in the future because of overpaying for an overpriced deal.
The assessment of the business for sale is carried out within the stipulated time. Therefore, it is important for any manager to entrust such work to a responsible company that fulfills its obligations on time and at a high professional level. Depending on the complexity of the work at the previous stage, the deadlines are precisely determined. If the company goes through the business evaluation procedure for the first time, then you should get an initial free consultation and then make your choice on a specific company. The value of a business, division, or individual asset is determined on a set date and consists of two basic components:
- The fair value of non-current assets (tangible and intangible).
- Working capital.
The Assessment of the Company’s Value for the First Time
Valuing a company for the first time is like playing chess. A chess player who plays white and one who plays black can evaluate the position on the board differently. Likewise, the owner and investor are likely to have different views of the same company. Obviously, this is because the owner and the investor have different goals. From the owner – to sell the company or part of it for the highest possible cost; from the investor – to buy a share or the entire company for the lowest possible amount.
Also, the assessment of the company’s value is carried out for other purposes, such as:
- participation in legal disputes;
- the departure of the founders;
- optimization of income and expenditure items;
- in the case of a planned issue of shares;
- planned liquidation of the enterprise;
- when separating assets from the complex;
- for the purpose of calculating the cost of rent, etc.
Why Is There an Emphasis on Valuation?
During the investment period, valuation is a determining factor in generating income for investors. In other words, the income for the investor is the increase in the value of the shares that he receives by investing his capital. Understanding the role of startup valuation is very important for successful investment activity. Unfortunately, valuation is the most misunderstood in the investment process and often causes contentious moments in negotiations, which sets an unfortunate tone in the entrepreneur-investor relationship from the very beginning.
The number of shares can be either very small or extremely large. If the cost of one paper is hundreds of times less than another, this rather indicates that one of the issuers has a significantly larger number of shares than the other.