I got a call from an entrepreneur the other day that was having trouble determining the value of their company. Specifically, the problem was that this entrepreneur's company participated in a market space that there's not a lot of publicly traded companies and, quite honestly, just not a lot of history out there. So, they were having problems finding enough information to perform some of the typical valuation analyses such as price to earnings or price to sales. What I recommend in this case is that you lean more heavily on the discounted-cash-flows method. Ideally, you'd like to have to have as many methods as possible and come back to a value, but sometimes you just can't, and you have to lean more heavily on the others.
What the discounted-cash-flow method does is it takes the cash flows that your company's expected to generate over a period and, by the way, this information should be contained in your business plan, discounts them back to the present, and you're usually looking at five years out, minimum of three, sum them all up, and arrive at a value of your company. This method is mathematically a little more difficult than the price-to-earnings or price-to-sales ratio methods. So, if you're having some problems or need some help, give us a call at the Capital Match Point. What we ultimately want to do is make sure that our entrepreneurs are as prepared as possible for when the time for negotiation comes.

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