As a small, local St. Louis business owner, you may find yourself in several situations requiring you to know how much your business is worth– commonly when you’re looking to scale up and need help from outside investors.
If it’s time for you to seek out funding for growth, it’s crucial for you to thoroughly understand why business valuation is important and some of the best methods for calculating valuation. Of course, this advice varies significantly from business to business and owner to owner, so seek help if you’re ready to valuate your St. Louis business to find out what it’s worth.
While there is no singular formula for accurately valuing your business, there are some tried-and-true methods of calculating what your business is worth depending on the end goal of valuation.
Discounted cash flow: This method is based on the expected cash flow of your business. The real-time value of your business today depends mainly on the money it will make in the future. Work with your business accounting partner to nail down this number for valuation purposes.
Valuing businesses based on hard assets is a standard method called asset-based valuation, especially for those businesses that own real estate or expensive equipment. The dollar value of assets is added up, and liabilities (like debt) are subtracted to get a fair market value of your business.
Using the comparables approach to valuation quantifies a business’ value based on competing, comparable businesses within the same industry. This less common valuation method leaves a significant margin for error; it’s not always easy to make an apples-to-apples comparison, even if two businesses look nearly identical on paper.
Not only can business valuation be complicated, but there are also actual emotions involved – yours, as the business owner. This could complicate things even further, as the sweat equity you put into your company is almost impossible to quantify.
The reason behind the valuation also plays a vital role in the final number. Are you planning to sell? What kind of buyer do you have on the line? Is the valuation for a lending opportunity? Or is it to prepare a pitch to investors? “Fair market value” of your business may mean many different things to the parties involved.
Ultimately, the most accurate valuation will come from working with an industry-accredited appraiser. These are experienced, qualified financial experts who work hard to understand best the current market and the value of businesses within it. There’s still an art to valuation, despite the mathematical work appraisers do to quantify your business as an asset.
Once you have established a valuation and funding, it’s time for your St. Louis business to expand. Start with a strategy — it doesn’t need to be complicated and complex, but it does need to be clear and concise. Set quarterly and annual goals, an analysis of the market, and any information about investors if applicable. If this is your first scale-up, don’t hesitate to ask mentors, advisors, or business coaches for guidance.
Invest in tech that helps reduce the labor required to scale. Tools like customer relationship management software, enterprise resource planning systems, and collaboration tools will streamline admin processes that can take your team away from focusing on high-value stocks that directly impact business scaling.
Once these pieces of the puzzle are in place, hire strategically. The ultimate goal is for startup founders or business owners to trust that they can walk away for a bit and things will still run smoothly. Look for leaders that will support your scaling initiatives and effectively manage them without you having to step in.
When you know it’s time to scale up your startup, find an office space that fits the new vision of your business. Ready to start scaling up? Request a tour of our office space. For businesses that desire custom space, low-cost gigabit internet speeds, secure parking, and unique architectural features, choose an affordable space option in the high-demand Downtown STL Innovation District.