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Sev
04-16-2016, 11:30 PM
Hi
I'm doing some projections to arrive at a vlue of a biz in 5 yrs. I've come up with the revenue, GP and NP plus the amount to invest from an Angel funder. I've got benchmarks from similar businesses.

I've done a FV, Pre/Post money value, DCF, ROI, ROR, IRR, Cash on Cash, P/E Ratio, etc, etc... but all only serve to confuse me further as none match or link in... I'm a lay person so have become a little confused with all these differing methods...

I have it all in a spreadsheet (some of the calcs may be wrong), -pls see attached.

Paul
04-17-2016, 06:44 AM
I may be wrong but it looks like you are applying sophisticated financial calculations to a proposed start up business. Without context of the business model, business plan and/or historic financial information the calculations are irrelevant to an investor.

Is this an ongoing business or a start up? Is your first year revenue of 16 million actual or projected? If this is a start up I’d be very surprised if an investor asked for these calculations. Generally these calculations are for comparison between/among investments in ongoing businesses or very solid models, not for a speculative start up.

You may have a very comprehensive business plan to support your projections but without seeing that it is difficult to comment on your financial calculations.
If you care to share more information it would be helpful.

Sev
04-17-2016, 11:13 PM
Hi Paul and thnx for your reply.

The biz has been going for 15 yrs. But now I want to take it nationwide.
Yes correct, I am basing the figs on projections.

The projected GP figs are based on actuals we have attained previously.
The revenue (and NP) is based on what similar businesses have achieved abroad. Revenue is based on % penetrtion of the populace x average spend. But I have discounted back to a realistic start for revenue then grown revenue over 5 ys.

All ghese are shown in the top left of the spreadsheet.

As to the calcs below that, The PE's/value of biz x revenue/etc are all based on what similar models have sold for. (but these vary widely).

I have attempted to do these so that a would be investor can see what value their return would be after five years. (subject to the revenue growth and GP/NP being as per my projections).

Fulcrum
04-18-2016, 07:18 AM
The problem with projections is, simply put, that they're projections. Circular reasoning at best but it is an accurate statement.

When coming up with a valuation, future income is the last thing I would look at. If everything else is in place (equipment, people, training, etc) I may allow a slightly higher valuation (based on current and historical data).

Sev
04-18-2016, 09:28 PM
Logic world suggest future income would be the very first thing anyone wanting to save time on fruitless investigations would look at. Then if that looked good, investigate further.
I'm wanting formula(s). These formulas I have mentioned are used when investors analyse businesses before they invest in them. That is one reason why these formulas exist.

Fulcrum
04-19-2016, 07:47 AM
The issue with using future income is that it is unknown. No one can accurately predict what a company's income will be in the future. Paying you based on future income means that I'm paying a premium for work that I have to perform. When valuing your business, I don't use other companies metrics and market penetrations to determine value.

This doesn't mean that I don't research possible competitors to find their shortcomings (so if I proceed with the purchase I don't make the same mistakes) and any other holes that may be in the market.

If I were to put my own money into another business, I'm going to come up with a valuation based on my own tried and tested formulas. That valuation will be based upon what your company is worth today. Not in 5 years. Not 3 Years. Not even tomorrow. I'll even make sure a clause is placed in an offer that gives me the ability to back out the day of closing, at no cost, in the event of a large change (up or down) in the value that I perceive your company to be.

MIRR, IRR, NPV, cap rates, pro forma, multipliers and the other myriad of formulas that are out there are, in my own opinion, only checks and balances. This means they are good for cross checking, but I would be extremely hesitant to use them to come up with, what might turn out to be, an inflated value that would scare off any possible investor.