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How to value your startup? Discover different key factors and methods to measure what your new business is worth.

How to value your startup? Discover different key factors and methods to measure what your new business is worth.
Sunday, 10 June 2018

It is said that startup valuation is more an art rather than a science [1]. Surely it is not an easy process. Valuing a startup business is an important part that an entrepreneur always has in his mind when he is carrying out a startup—among adventures, fears, risks, and investments.

According to Mario González Head of Management and Accounting at CTA (Corporación Tecnológica de Andalucía), to get an adequate idea of what your company is worth, there are a number of key factors that determine the value of the startup and it is essential to take all of them into account. [2]

1.A good team
2.The product or service maturity level, measured with the TRL (Technology Readiness Level).
3.The choice of the sector
4.The evaluation methods employed

However, these key factors still don't give you the specific startup value. Here is an overview of different business assessment methods that can be used to make a more accurate valuation:

-Price to Earnings Ratio (P/E): This method, suitable for companies that have a proven track record of profits, is the ratio for valuing a company that measures its current share price relative to its per-share earnings.   For example, technology startups often have a high P/E ratio because they are usually high-growth. [3] [4]

-Entry Cost: This method consists in assessing how much it would cost to set up an activity similar to the one being assessed, taking into account all the start-up costs (product cost, customer base, recruiting, and training staff). After this, the savings that could be obtained during this configuration are evaluated. [3]

-Valuing the assets of a business: To perform an asset valuation, you need to start calculating the Net Book Value (NBV) of the asset. It is a process of determining the economic value of a business or company and it is often carried out by professional business valuators for an objective estimate of the value of the business. [3][4]

-Discounted Financial Flow (DCF): This is a complex process to evaluate a company, based on assumptions about its future. DCF analysis use future free cash flow projections and discounts them, using a required annual rate, to arrive at present value estimates. [3][4]
So, how much is your business worth? Calculate the value with a few key elements, valuation methods, unfailing flair, and remember what works for one company will not always work with another.