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Thu 24 Apr 2014 03:12 PM

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Abdulaziz asks: What are the most common ways to measure this value?

Hello. To convince an investor to invest, the investor must see value in your business. How is that value determined and quantified? What are the most common ways to measure this value? I own a business and it is eating a lot of money. In the near future, I see the need to convince investors to invest with them owning a percentage of the business. Thanks, Abdulaziz Hakim. Owner of Interior Design firm

Dear Abdulaziz,

 

As mentioned in my reply to Hani, there is no exact science to business valuation, however, depending on the type of business you’re running, and the stage it’s at, there may be existing methodologies that are commonly followed for your type of business. Usually, the easiest way to do this is to find a publicly traded company that is as similar to yours as possible, and then follow the valuation methods that market analysts have applied on it. If finance is not your area of experience, it would also be recommended that you find someone who can help you in this area.

 

In your case, and since it seems that your business is not possibly as profitable as it could be, it is important for you to have a plan on how you’re going to turn the business profitable and be able to show that to any potential investor. You’ll need to explain where this investment will be utilized to turn the business around and eventually provide a positive return to the investors. Profitability and Return on Investment (ROI) play a huge role in the valuation you’re going to approach investors with.

 

Wish you all the best in your endeavours,

Badr