Business Valuations, Business Plans and Business Projections Explained!

Workshop on Business Valuations!

Kunal R. SarpalWhite Collar Legal LLP

15th October 2016

Overview

• Understanding Business Valuations• Types and relevance• Mode of computing• Documents needed before pitching to an

investor• Content necessary to make these• Pitching session

• Understanding Business Valuations• Types and relevance• Mode of computing• Documents needed before pitching to an

investor• Content necessary to make these• Pitching session

210/15/2016 Copyright. White Collar Legal LLP

Business Valuations

• What is it?

• Business valuation is a process and a set ofprocedures used to determine what abusiness is worth.

• What is it?

• Business valuation is a process and a set ofprocedures used to determine what abusiness is worth.


Why done?

• To determine...

• Sale Value• Partner Ownership• Divorce Proceedings

• To determine...

• Sale Value• Partner Ownership• Divorce Proceedings


What does it take into account?

• Current year profit• Foreseeable years profit (going concern)• Goodwill (brand value)

• Current year profit• Foreseeable years profit (going concern)• Goodwill (brand value)


Start Up Valuation

• Why does it matter so much?• Giving a share• Future earnings method• Example.

• Why does it matter so much?• Giving a share• Future earnings method• Example.


Deciding factors?

How much do you need?

12 months36 months

How much are you willing to give away?

How the stakes work!

How much do you need?

12 months36 months

How much are you willing to give away?

How the stakes work!


How to determine Valuations!

• Seed Stage – What is seen?• Traction – How many Users, Reputation,

Revenues, Distribution Channel, Hotness ofthe Industry, Financials

• Seed Stage – What is seen?• Traction – How many Users, Reputation,

Revenues, Distribution Channel, Hotness ofthe Industry, Financials


How does valuation help?

• Credibility• Keeps the employees motivated• Keeps the stakeholders motivated• Track goals• Retirement planning• Expedite Sale and Acquisitions• While restructuring business, adding a partner• Exiting

• Credibility• Keeps the employees motivated• Keeps the stakeholders motivated• Track goals• Retirement planning• Expedite Sale and Acquisitions• While restructuring business, adding a partner• Exiting


Types of Valuations

• Asset Based / Cost Based

• Sum total of the costs required to set up aidentical business

• The central methods under the asset approachare these:

• Asset accumulation method• Excess earnings method

• Asset Based / Cost Based

• Sum total of the costs required to set up aidentical business

• The central methods under the asset approachare these:

• Asset accumulation method• Excess earnings method


Important pointers• market values of business assets and liabilities

• Important off balance sheet assets include theinternally developed intellectual property,customer lists, and valuable businessagreements.

• On the other side, the method accounts forcontingent liabilities such as pending legal actionjudgments and costs associated with regulatorycompliance.

• market values of business assets and liabilities

• Important off balance sheet assets include theinternally developed intellectual property,customer lists, and valuable businessagreements.

• On the other side, the method accounts forcontingent liabilities such as pending legal actionjudgments and costs associated with regulatorycompliance.


Income Based Business Valuationmethod

• Value based on its income producing capacityand risk.

• Techniques used by these methodsare capitalization and discounting.

• The Discounted Cash Flow business valuationmethod is the most common way ofdetermining business value by discounting itsincome.

• Value based on its income producing capacityand risk.

• Techniques used by these methodsare capitalization and discounting.

• The Discounted Cash Flow business valuationmethod is the most common way ofdetermining business value by discounting itsincome.


Market Based

• Comparison to the recent selling prices of similarbusinesses.

• Professional business appraisals often includethese market valuation methods:Guideline publicly traded company methodComparative transaction method~Valuation Formulas derived from comparablebusiness sales are a standard way to determinethe business fair market value.

• Comparison to the recent selling prices of similarbusinesses.

• Professional business appraisals often includethese market valuation methods:Guideline publicly traded company methodComparative transaction method~Valuation Formulas derived from comparablebusiness sales are a standard way to determinethe business fair market value.


Combination of all methods required

• Business value synthesis report.

• For established businesses, 10 crore plusvaluation.

• Business value synthesis report.

• For established businesses, 10 crore plusvaluation.


Documents seen by an investor

• Stages are:• Referral• Soft due diligence• Hard due diligence• Meeting and Valuation• Investor Agreement• Disbursement of funds

• Stages are:• Referral• Soft due diligence• Hard due diligence• Meeting and Valuation• Investor Agreement• Disbursement of funds


Documents required.

• Business Plan

• Business Projections

• Business Valuation Report

• Business Plan

• Business Projections

• Business Valuation Report


Business Plan

• What is it?

• Overview• Financial Report• Metrics• Research• Background• Why It will work

• What is it?

• Overview• Financial Report• Metrics• Research• Background• Why It will work


What to include in it?• Purpose• Problem• Solution• Why now• Market Size• Competition• Product• Business Model• Team• Financials

• Purpose• Problem• Solution• Why now• Market Size• Competition• Product• Business Model• Team• Financials


Business Projections

• Where will the business stand?

• When can I exit?

• What will big money come in?

• Tenure of investment?

• Where will the business stand?

• When can I exit?

• What will big money come in?

• Tenure of investment?


How it works?

• Project forward after industry research andapplying industry growth rate

• Researched presumptions• Period will be as per the appetite of the

Investor

• Project forward after industry research andapplying industry growth rate

• Researched presumptions• Period will be as per the appetite of the

Investor


Valuation Report

• Customised• Based on stage and purpose of valuation• Validity of a valuation report• Recognition

• Customised• Based on stage and purpose of valuation• Validity of a valuation report• Recognition


Thank you!

• Hope there was learning.

• The best learning happens in moments ofenjoyment.

• [email protected]• 9370465710

• Hope there was learning.

• The best learning happens in moments ofenjoyment.

• [email protected]• 9370465710


Business Valuations, Business Plans and Business Projections Explained!

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Transcript of Business Valuations, Business Plans and Business Projections Explained!