About Professional Planning Associates Expertise Questions relating to business plan preparation, contents, approach and how to prepare plans that provide investors with the information required to make an investment decision
Experience Professional Planning has been operating since 1993. Its principal has over 30 years of business experience. The Company's financial expert has earned a Doctorate in Accounting
Organizations Gold Coast Venture Capital Club, Coral Ridge Kiwanis
Publications Investor's Business Daily, Vfinance.com, the Black Entrepreneurs Association, Webentrepreneurs.com andIslamiQMoney.cpm
Education/Credentials B.A. from Hofstra University
Expert: Professional Planning Associates Date: 7/19/2004 Subject: Pre-Money Valuation
Question I am trying to set a pre money valuation for a start-up business. I am trying to keep investors equity to a max of 44%. With Revenues of $1mm my first year I came up with a pre-money val. of $2.45mm. Do you think that this sound ridiculous to investors. When we believe this will be the valuation of the company. It is 2.5X revenue. It is in the spa and salon industry. I know setting up a pre-maoney is more of an art than a science bu I wanted to get someone else's point of view.
Thanks,
Brian Stanton
(713) 459-4450
Answer Brian:
I am not an expert on valuation, however here are some thoughts. Computing value by anything times revenue is simply a rule of thumb primarily used by business brokers. Any professional investor wants to see at least 3-5 year projections in the form of proforma balance sheets, income statements and cash flow projections. Revenues alone have little meaning. Real investors will also look at industry ratios as compiled in financial ratio publications. Any good library will have these tables. Until you prepare the above any valuation calculation is premature.
