Understand the valuation methods and what makes an investor pay more for your business.
"How much is my company worth?" That is the million-dollar question (sometimes literally). For anyone leading an Invisible Business, understanding the Valuation process is essential, whether to attract a partner, plan a strategic exit or simply measure how well the company is being managed.
Contrary to what many people think, the value of a business is not based on revenue alone, but on its ability to generate cash in the future.
The Most Common Valuation Methods
There are several ways to arrive at a number, but in the world of equity investments, two stand out:
Discounted Cash Flow (DCF): this is the projection of how much money the company will have left over in the coming years, brought back to today's value. It is the most technical and respected method.
EBITDA Multiples: widely used by holding companies. Here, you look at operating profit (EBITDA) and apply a multiplier based on the company's industry.
What increases the value of your company?
It's not just the numbers that count. There are qualitative factors that make an investor pay more for your business:
Recurring Revenue: having long-term contracts is worth much more than one-off sales.
Low Dependence on the Partners: if the company runs on its own without the owner having to put out fires every day, it is worth more.
Scalability: the potential to double in size without doubling costs.
Valuation as Bullseye Sees It
For us, Valuation is the start of a conversation about potential. We look at where the company is, but we focus mainly on where it can get to with the right governance and connections. A well-structured business today can be worth five times more in a few years with the right strategy.
Understanding the value of your business is like holding the treasure map in your hands. If you know what generates value, you know where to focus your management efforts.
