Why Companies With No Real Asset Value So Much: 7 Essential Elements They Consider

Do you actually consider that a company with no real asset can value so much as $40 billion? Well, you are going to find out in this short article today.

Today, I believe you will benefit from some of the simplest elements in valuing a company. So let’s begin, the 7 essential elements most companies consider when they value themselves based on milestones.

I was searching for a topic this morning when I came across a discussion on Reddit “How Companies such as Uber and Ashley Madison Value Themselves”? The discussion caught my attention when one of the participants said, “I was reading about Ashley Madison scandals and how it has sales of $115 million but values itself at $1 billion.

Even a company like Uber that has no real asset value at $62.5 billion, where did they get those values from?” and I know that some of you out there might have also wondered how they got those values?

Well, most companies value themselves based on their milestones. Let me give you one example, if you watch Uber news you will see that they always talk about their milestones.

The company proudly announced that they have reached the new milestone on April 14, 2015. Wayne Ting said, “the number of Bay Area driver-partners on Uber platform exceeded 20,000 for the first time… And we were not even halfway there just one year ago”.

Then again on June 28, 2015, they also exceeded their milestone in South Africa, and this year 2016, their target is to hit another milestone in China. Okay, in that case, let’s briefly brush over the 7 essential elements that most companies look at when they value themselves:

#1: Business plan – The number one thing they would be proud of is that they have a business plan. They know the purposes of a business plan, that you can use it when you want to raise funds. You can also use it as a marketing tool and as a planning tool.

#2: Money – Money is a very important tool in every business, you know that. They go and raise some cash.

#3: People – They also hire people, and Remember the number 1, 2, 3 things investors look at when they value a company is people.

#4: Products – Another thing is that they build their products, and take them to the market. It might just be a company’s app or something like that.

#5: Customers – When there are no customers, there would be no sales, and when there are no sales definitely there would be no profit. They carefully figure out who their major customers are, or their target market. They may base their target on demographics, or university students of lower or upper grade, geographical or what have you.

#6: Marketing – This is very, very important. Marketing is the propeller that propels their products to the desired market, I mean the right market. It also helps your brand name gain exposure, when handled effectively.

#7: Risk – So what most venture capital firms do is that they look at a company’s risk factors, if the stage of the risk of the company is less, generally, they worth more money on all those stages.

How To Fund Your New Venture

So, you have kicked off a new business, and you are looking for a way to get funds. First of all, you need to keep in mind that there is no best way to fund a new business. Each method has its own advantages and disadvantages. Moreover, a method that worked for one type of business may not work for your business type. Therefore, you should go over the options given below and choose a method based on the type of your business.

Self-finance

If you have set some money aside during the past few years, you can use it for your business. Self-financing is a good option as you won’t have to borrow from anyone. On the other hand, if things don’t go as planned, your hard earned money will be gone forever without giving you any return.

If you can’t risk losing your savings, this option may not be suitable for you. But if you have a large amount that you saved, you can invest some of it and save the rest for rainy days.

Bank Credit Cards

Using credit cards to fund your business is another good option, but keep in mind that you will be paying huge sums of interest for several decades because the interest rates on credit card transactions are very high.

However, the upside is that using bank credit cards to fund a business is an easy option as long as you are fine with high interest rates.

Friends & Family

If you don’t have enough savings, you can ask your family or friends for money. However, make sure you return the money on time or your relationship with that person may get affected. Plus, if your business fails, they will get upset because they have an emotional attachment with you.

Mortgage

You can’t get a bank loan unless you don’t have a good credit record and collateral. So, what you can do is mortgage your home or farm to get a loan. While this can get you a business loan, you will be paying back the loan whether your business becomes a success of failure. Your house or farm can get sold out if you fail to pay back the loan.

Angel Investors

Someone from your friends or family can become an angel investor for your business. They will provide funds for your small business in exchange of a share in the ownership of the venture.

Before you sign an agreement with your angel investor, make sure the terms and conditions of the contract are clear to both of you. This will help you prevent disputes in the end.

So, these are a few good options for you to get investment for your new venture. All of these options are good and work for small ventures. But make sure you have evaluated all the options before choosing one. The success of your business depends on the capital and if invested after a lot of thinking, your chances of success will go up.

Characteristics of a Successful Business – M&A Transactions

Many businesses fall short of their potential valuation or maximum sale price. While there is no such thing as a perfect business without flaws or challenges, the businesses which sell at the top of the valuation range or command the highest multiple embody a number of common characteristics.

1. Increasing revenue/profits. Cash is the fuel of business. Businesses that have strong financials with year over year growth in revenue and profits will be in demand and should achieve an attractive valuation.

2. Clean Books. Having accurate, detailed, up-to-date and professionally prepared financial statements and records is one of the most critical components to a successful business sale.

3. Bright prospects for future. Businesses that operate in an industry that has a strong outlook for continued growth in the years ahead will be highly sought after.

4. No customer concentration. A business that has a diverse and broad customer base will have a lower risk that the loss of any one customer will have a material impact on the revenue and profits of the business.

5. Multiple vendors. Companies with a diversified product and/or service offering with a deep bench of suppliers and partners will be a less risky acquisition than a company who is dependent on only one manufacturer or service provider to generate income.

6. Stable work force. Having a loyal and content work force with long term employees is always a positive attribute for a buyer seeking to acquire a privately held business.

7. Established Processes. A business that has written procedures detailing work flow and operational processes provides greater continuity during a business transfer of ownership.

8. Owner not the business. Companies where the owner lends their expertise by working “on” the business vs. “in” the business are less likely to experience a loss of revenue during a sale. Owners who have become the face of the business where they are one of the chief reasons for customers using their products or services create challenges for the new owner in retaining these loyal clients.

9. Business qualifies for acquisition funding. A business for sale that meets the qualifications for acquisition funding by a bank or SBA backed lender will benefit from their ability to be marketed to a wider audience. Certain issues prevent 3rd party financing from being secured including poor financial performance or messy books with unreported cash and questionable add-backs.

10. Professional Advisors. Successful business sales require a team of professional advisors who are experts in their designated field. Members should include an experienced M&A advisor or business broker, a business attorney who specializes in transactions, and a CPA knowledgeable about tax structuring and asset allocation. Experienced advisors are worth their weight in gold and will add value that far exceeds the fees involved.

Small business ownership involves some level of risk. The price a business is valued at should reflect the degree of risk. While the element of risk can never be eliminated from small business ownership, the ten characteristics detailed above should mitigate many of the issues that cause concern for buyers when pursuing an acquisition. This in turn will enable the business value and sale price to be maximized.