Be Weary of Business Valuation Calculators
This video blog is about comparing the valuation results of a company we recently valued at BizWorth to the results of a business valuation calculator found on the internet.
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Business valuation calculators are everywhere on the internet. Would you trust something as important as your business valuation to a black box found on the internet? Watch this video to learn how a business valuation conducted by a certified BizWorth professional compares to the value generated by a valuation calculator.
The experts at BizWorth will help you thoroughly research and pinpoint the reliable value of your company with a certified business valuation that meets professional standards and mitigates tax and legal risks associated with buying or selling your business, partner buyouts, buy/sell agreements, share redemptions, SBA loans, or making big changes in your business plans. Visit us: www.BizWorth.com Contact us: www.BizWorth.com/contact/.
Hi. I’m Shelia Darby, managing director at BizWorth.
You’re likely watching this video because you want a quick and simple valuation of a business and you’re searching for a reliable business valuation calculator to do the job.
The term “calculator” implies something used for making a mathematical calculation. And “mathematical calculation” further implies, to many of us, there is a precise and right answer.
To see if valuation calculators are reliable, you’ll see the valuation results of a company we recently valued at BizWorth compared to the results of a business valuation calculator found on the internet.
First, here’s a few facts about the subject company valued:
- Type of business: site preparation business providing a range of earth-moving services.
- Years in operation: 2 years old
- Revenues: $2.7 million in Year 1 and $3.4 million in Year 2
- EBITDA: $0.49 million in Year 1 and $0.32 million in Year 2
- Net income (loss): ($0.09) million in Year 1 and $0.12 million in Year 2
- Expected growth: 20%, 10%, 6%, 5% and long-term growth rate of 1.8%
- Weighted average cost of capital (WACC): 20%
- Valuation purpose: partner dispute
Once you include all the pertinent information listed above into the calculator shown on the screen, you’ll see the valuation ranges from a low of $488,011 to a high of $732,016. You should notice that these values give the impression preciseness given the exactness of the values shown.
You will not see this from a certified valuation professional as we know it’s impossible to value a business exactly. There can be more than one value, but the key is for the values to be in the same close range and these are not – there is a 150% increase in the value from the low vs. high.
Even worse, we evaluated over 20 calculators found on the web, producing valuations from a low of $488,000 (rounded) to the highs of $11 million. This range of values is so wide that you would naturally think different companies were valued – but no – these values are based on the same subject company.
Our certified valuation professionals at BizWorth valued the company based on a comprehensive review, including lengthy discussions with management, review of the economy and industry as well as the financial health and prospects of the company. The resulting valuation range from our professionals was from low to high, $975,000 to $1,088,000 – obviously a much tighter valuation range.
We hope that some key takeaways for you from this value comparison is that business calculators…
- Are not reliable
- Are not a replacement for a comprehensive valuation by a certified professional
- Are black boxes with unknown formulas
- Are conversation starters for brokers and uncertified professionals to collect your information and win your business
- Threaten your credibility
I hope this video blog was helpful. Please reach out if you have any questions. If you go to our web site, www.BizWorth.com, you can schedule an appointment to meet with me or one of our advisors to talk about your business valuation. Even if you’re not sure it’s the right time for a business valuation, hop on a free consultation and let’s talk through that. We’re always happy to help business owners so feel free to reach out. If you like our content and would like to see more, visit our blog or follow us on Facebook, LinkedIn, and YouTube. Thanks so much.
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