This valuation model is for anyone interested in buying, selling or managing a company.  The novice or the professional will find the model to be very robust and flexible.  The user can invest 5 minutes, 5 days or 5 months into assessing a company’s value and this model can be used all along the way.

The buyer can determine a preliminary value of a company before investing in site visits, interviews, reviewing of contracts and so on.  This is an ideal tool to screen candidates for acquisition.  It is also useful to determine a ballpark offer range to gauge the seller’s interest.

For the seller, this tool will greatly enhance your negotiating position because you will have a much better understanding of what your business is worth.  Use it to determine an asking price.  Starting off with an asking price that is too low can be very expensive to you and could even make a buyer less interested. To regain their attention, you will need to lower your price and weaken your negotiating position.  Starting off with an asking price that is too low can be very expensive to you.  Start from an informed position.  Demonstrate that you have a solid grasp on the value of your business.

Once you get into negotiations for your company, chances are the prospective buyer hasn’t done as much analysis as you.  This model can help you convince the buyer that your business is worth more than the price being considered.  Or, you may find that the price being offered seems more than fair.  What does the buyer see that you don’t see?  Use this model to help you figure that out.

Assess the value of your company with complete privacy.  For very good reasons, you may not want anyone to know you’re even thinking about selling your company.

For the manager interested in growing shareholder value, this model allows for endless “what-if” analysis by adjusting any of over 200 different variables.  See instantly how affecting any of those variables changes the value of the company.  The single biggest determinant of company value is cash flows.  This model will give you a greatly enhanced understanding of what drives cash flows.

Even if you asked your accountant to value your company, she would probably charge you more for a couple hours of her time than the price of this model. The fact is, most accountants have little or no experience valuing companies. The cost of one company valuation performed by a professional in the industry can range from $400 to tens of thousands of dollars. Depending on your situation, you may still want to hire someone to assist you since there are many judgment calls that need to be made about the assumptions that feed into this model. Chances are good, though, that the professional appraiser uses a model very similar to this one. In fact, theirs may not be as good as this one. Or, they may use this one!

Buying and selling companies is part art, part science. There are many differing perspectives around the following, incomplete list of determinants of company value:

• Industry sector
• Brand strength
• Channel strength
• Location
• Management
• Technology, patents and trade secrets
• Customer base
• Age of business
• Owner involvement
• Competition
• Availability of vendor financing
• The current economy

No model is going to be able predict the impact of each of these.  But each of them has an impact on company cash flows, either now or later.  In all probability, you understand these issues relative to the target company better than anyone and you are the best person to estimate what sales and profits will be over the next 5 years.  Enter that information into this model and you will have a valuation that is based on the most commonly used method of valuation available today, the discounted cash flow method.

Beware of simple valuation models available on the web that ascribe a value to your target company by comparing to market multiples of a large database of similar companies.  This shortcut method frequently has no correlation with the specifics of your company of interest and usually the multiples used are collected over several years and may not even include the most recent year.  Just think how different the economic climate was in 2008 vs. 2007.  Does it make sense to just average multiples over the last 10 years?  Does it make sense to compare the multiples of your gourmet, high-end restaurant to all the restaurants in the country, including all the franchise burger businesses?  Of course not.  Again, these alternative valuation models can be helpful by providing additional points of reference.  But don’t rely on them exclusively.  A thorough discounted cash flow (DCF)  analysis is the one method used by virtually all professionals, at least as a baseline valuation method.  And that’s true for small businesses, medium-sized businesses and Fortune 500 companies.

In the final analysis, you can do all the analysis you want.  But the true value of any company is what a buyer is willing to pay at a particular point in time.  This model can help you make sure that you are either paying a price or selling at a price that is reasonable.

In the beginning, no.  Why spend hundreds or thousands of dollars to find out that now is not the time to buy or sell?  Get a preliminary indication of company value with this model.  In the more advanced stages of negotiating, it may be helpful to hire a professional.  But the real key to understanding company value is knowledge of the market and the company.  Will your appraiser know that better than you?  Chances are, they will be feeding information you give them into a model like this.  Even so, this model does not take the place of company visits, interviews, market studies and so on.  This is only a tool for synthesizing all that information.

Yes.  Every business has an income statement and a balance sheet.  Why not invest a small amount of money for this model, enter the income statement and balance sheet information, make some assumptions about the future and get an instant idea of what the company is worth?  At a minimum, you will learn how changes in some of the financial variables can affect the value of your company. 

If you are looking at other models available on the market, be careful about buying one that is either too simplistic or overly complex, or one that tries to average valuations from a dozen different methods.  This model is as simple or sophisticated as you desire.

Yes.  The principles used to develop this model are the very same principles taught in business schools and used by large, acquiring companies around the world.  In fact, the developer of this model valued and led several acquisitions for a Fortune 500 company.  The robustness of the valuation is determined by how much front-end work is done on the assumptions.  The power of this method of valuation is that it allows for endless tweaking of the assumptions.

Do you want to sell someday?  Do you want to pass the business on to your heirs?  Will you ever want to raise additional capital through borrowing or issuing stock?  How would you value that stock?  There are a number of reasons why you will want to understand the value of your company and what you can do to increase it.

This model could greatly enhance your understanding of what drives cash flows and, therefore, company value.  What happens to company value when you increase or decrease prices?  What about when you increase or decrease inventory?  If your labor rates go up 10%, how does that affect the value of your company?  Sure, you can game any of those situations in a spreadsheet to see how it impacts your income statement, balance sheet and even cash flows.  But financial statements are always backward-looking.  You need a model to help predict company value based on proforma information.

If you have an income statement and some familiarity with Microsoft Excel, you can use this model.  You also need to be able to make some educated guesses about what the sales of the company will be over the next 5 years.  The required number of inputs are very few.

Yes.  The inputs to this model are clearly identifiable with blue text.  It is an excel spreadsheet so you can keep a copy safe and start fresh at any time.  You are not creating a spreadsheet.  You are using one that has been created for you.  There’s a big difference.  If you find that you still need additional help with Excel, there is plenty of help available on the internet. Or, perhaps you know someone who can assist.

Beware of simple valuation models available on the web that ascribe a value to your company of interest by comparing to market multiples of a large database of similar companies.This shortcut method frequently has no correlation with the specifics of your company and usually the multiples used are collected over several years and may not even include the most recent year.  Just think how different the economic climate was in 2008 vs. 2007. Does it make sense to just average multiples over the last 10 years?  Does it make sense to compare the multiples of your gourmet, high-end restaurant to all the restaurants in the country, including all the franchise burger businesses?  Of course not.  Again, these alternative valuation models can be helpful by providing additional points of reference.  But don’t rely on them exclusively.  A thorough discounted cash flow (DCF) analysis, the method used by this model, is the one method used by virtually all professionals, at least as a baseline valuation method.  And that’s true for small businesses, medium-sized businesses and Fortune 500 companies.

No.  This is for the person who doesn’t know which valuation method is the best.  In the end, you’ll probably end up with a value for the company that is too low.  The range of values between these methods is quite large.  For instance, one of the methods frequently averaged in is the book value of the company which is often only a fraction of what the company is actually worth.  Knowing that, why average that in and pull down the value of the company?  It doesn’t make sense. 

Similarly, the market multiples approach is another common method that is averaged in.  Why would you pull down the value of your target company with data that is dated and includes all the poorly performing companies on the market?    If you are trying to buy or sell a highly performing company, then you should be comparing the target company’s performance against similarly performing companies.  Likewise, if you are looking for a turnaround candidate.  Compare with other turnaround candidates.  In this case, you are not interested in paying the going market multiple.  There are also many dissimilarities between businesses in any given industry.  Don’t compare your gourmet restaurant with all the sandwich shops in your defined market.

Use the most commonly used valuation method on the market, the discounted cash flow model.  For more advanced valuations, put your time and resources into better understanding your assumptions, not in trying to determine all the nuances among the vast array of creative valuation techniques.

Finally, online valuation tools tend to allow you access to their model only for a period of time.  By downloading the ValueThisCompany.com model to your local computer, you have unlimited access to it, can save your work, can save multiple scenarios and you don’t have to be concerned with network connections and timeouts while you’re working. We all know how frustrating it is to lose hours of work because of a technical glitch.

Sometimes the industry does matter.  Your industry gives a preliminary indication of risk.  The higher the risk, the greater the value of your company will be discounted.  But you should not give too much weight to this, for all the reasons explained above.

This model will ask you to select an industry.  Resident in the model (hidden) is a database of beta values which reflect the risk of companies on those markets.  This value is then used to calculate the discount rate on the assumptions page.  If you don’t agree with the resultant discount rate, you may enter your own.

It certainly matters when it comes to what someone will pay for the company.  But it does not matter relative to determining the present value of all future cash flows, i.e., the value of the company.  Conditions in the location country should be taken into account when assessing the assumptions that go into this model.  The model is only a tool for synthesizing your assumptions and determining a value.

Click on the “Feedback” link and submit your question.  Someone will respond to you as soon as possible.  Note that we will only respond to questions regarding the model itself.  All feedback relative to improving the model is appreciated and will be taken into consideration.  Your purchase gives you a period of time during which you may download the model multiple times.  Check for newer revisions of the model from time to time.