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Hi there 👋
Welcome to the first dispatch of the EpsiFund newsletter! We are excited to share valuable insights that you shall hopefully find helpful in running your day-to-day business. This time it's about business valuation.
Don’t remember hearing from us before? No wonder, we are only just starting but already brought some value to the Shopify community by financing cool Shopify Apps that are used by hundreds of thousands of merchants. We have also launched an easy business valuation tool for Shopify App developers back at the end of last year!
Subscribe to Epsi Dispatch here
Subscribe to Epsi Dispatch here
VALUATION AS A STARTING POINT
Why talk about business valuation at all? We truly believe that knowledge is power, and one of the fundamental data points that is worth knowing is the value of what you’re building. It’s a starting point that can help in navigating future growth and prepare for any unexpected change around the corner.
WHAT IS VALUATION, AND WHEN DO I NEED IT?
A business valuation is the amount of money the business is worth in the current market conditions. It touches upon the business's assets and cash flow it can generate on a continuous basis. The insight gained from knowing it can shed light on a business's real-time growth potential, operational strengths and weaknesses.
Here is a list of 7 use cases when you need to determine a value of your business:
1. Investment Opportunity. Business valuation is essential when pitching to potential investors or raising capital. It acts as social proof for investors, demonstrating the business’s stability or growth potential.
2. Planning Succession. If there's a plan to transfer the business's ownership via selling shares or passing to a successor heir, having an accurate business evaluation assists in smooth transitions.
3. Selling the business. If you want to sell your business, you need to know the price, right? It will ensure you receive the appropriate monetary value for the business you've worked hard to establish and expand.
ARE ALL VALUATIONS BORN EQUAL?
In fact, there are 3 main approaches to calculate the value of your business:
Income or cash-based. The most common method based on the income or cash flow the business is expected to generate over a reasonable time.
Market-based. This approach is based on “comps”— i.e., the business valuations of comparable companies. The hardest bit is to determine your relevant peer group—thin sector/industry, revenue, costs size to settle on the best comps.
Asset-based. In this case you have to know your tangible assets such as equipment, property, inventory, as well as intangible assets, such as software, licenses, patents, and intellectual property.
Stay tuned for further tips and guidance for different methods we’ll share more in our next dispatch, but don’t hesitate to do your own research too. Check out our business valuation tool to get either an instant valuation or run a precise one with the key metrics underpinning it. Getting an idea of a possible valuation range for your business is a great starting point to inform your decisions.
Thanks for reading! Any questions, reply to this email, and we’ll get back to you as soon as possible.
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