Business Valuation Tool



Your Online Business Value Calculator

Do you know the value of your business? Would you know where to start in calculating its worth? So you can set a reasonable and well-argued Asking Price.


(Calculated at Cost of Equity equal to 15%)

Range of Business Values to Cost of Equity


How to Value Your Business

The Business Valuation Tool uses the discounted cash flows (DCF) method to determine the present value of a business.

DCF takes into account all forecasted future cash flows adjusted for their time value. That’s because the buying power of today’s money is not the same as money received in future years. This "time value of money" specifically recognizes the erosion of money’s value through inflation and the foregone interest payments that the buyer could have received, for example by holding secure government bonds, had they not bought your business.

Looked at another way, a dollar held today has greater buying power than the same dollar received and spent at some time in the future. It’s the DCF calculation that makes this necessary adjustment back to the present.

DCF takes the forecast cash flows, whether into or out of the business, over the next four years. Discounting these future cash flows back to the present time is the best way of accounting for business and financial risk.

The choice of discount rate is clearly crucial to the calculation of business value. It equates with the Cost of Equity, and is made up of two factors. There’s the "risk-free" rate of return (as, in theory, "guaranteed" with government securities), plus a risk premium for investing in a commercial entity. The risk premium shall aggregate factors such as uncertainty of profit forecast, market and economic risks, competition, and quality of customer portfolio.

The discount rate reflects the relative riskiness of your business compared with others, including the safe "do nothing" option. A buyer will assess your business on the basis of relative risk compared with alternative purchase options.

All private sector businesses are inherently risky. It’s a question of estimating the degree of risk for each business and applying the appropriate discount rate. Business buyers and investors will consider, either explicitly or implicitly, the Cost of Equity when putting money into any business. For a typical mature, established business the Cost of Equity used to discount future cash flows is in the 12% to 20% range. The higher the rate chosen, the higher the expected risk, and the lower the value of future cash flows in today’s money.

Before applying the discount rate, it’s important to estimate a "terminal" cash flow value (Terminal Value) to add to the 4 individually forecasted cash flow years. This assumes the business will continue to generate steady cash flows 5 more years and bundles them together in a single estimate that is calculated as Present Value of Ordinary Annuity. The result is then discounted back in the normal way.

The Business Value becomes the sum of the present values of the cash flows in the forecast period, plus the discounted terminal value figure.

Another way of presenting business valuation is to graph Business Value (on the vertical Y-axis) against different discount rates (the Cost of Equity on the horizontal X-axis). See the graph above.

Learn more:

Inputs





...

(there are a few more key inputs)

Sign up to access a fully-functional Business Valuation Tool


2017201820192020

2017201820192020
2017201820192020






ExitAdviser's business valuation approach gives you the confidence to defend your Asking Price in front of any prospective buyer. That's because it uses Discounted Cash Flow (DCF), the most widely respected method of valuing an ongoing, profitable business. It takes the expected future cash flows and "discounts" them back to the present day, to give a well-argued valuation.

It's well worth taking time to get your valuation right. Be sure to use actual financial data and considered forecasts that can de defended with rational arguments. For this reason ExitAdviser recommends that you take several attempts with the Business Valuation Tool until you feel happy with the result. Before setting your final Asking Price, compare the tool outcome with other valuation methods, including price comparison with other similar businesses listed on a variety of online business sale websites.

Disclaimer

Important Information, please read carefully before using this Tool.

The Business Valuation Tool (BVT), whilst using a robust, standard method to produce a guideline business valuation, is not the only way to appraise a business. Before you settle on the final Asking Price for your Sales Memorandum and campaign Landing Page, you are strongly advised to compare your results from the BVT with results from alternative methods, such as comparison with similar businesses listed on a selection of online business sale websites. ExitAdviser takes no responsibility for the accuracy of the numbers you enter into the BVT, nor for any misunderstanding you may have about the way the BVT calculates business value, nor for the consequences of using valuations calculated by the BVT when deciding your Asking Price. If you are in any doubt about the most realistic value for your business, you are strongly advised to seek professional assistance from your Accountant.

Terms and Conditions