How to Maximize Your Company’s Worth with Top Valuation Strategies

Most companies in the market often maximize the company’s worth with top valuation strategies, as pre-planning is necessary for funding, making sound decisions and planning growth strategies. For example, companies can increase perceived value by forecasting earnings based on consistent revenue drivers.

Amazon’s valuation using the Discounted Cash Flow (DCF) method is a great example of income-based valuation in action. By looking at future cash flows, Amazon sees long term growth and adjusts accordingly. Amazon projects income from AWS and other high margin services to calculate future revenue to make it attractive to investors looking for steady returns.

Likewise, with valuation strategies in place, you can increase your company’s value through various means. There are many ways to value your company, such as DCF, CCA, EBITDA multiple, revenue, etc. Whatever method you choose should always focus on increasing your company’s value.

Here are some key strategies to implement - Let’s get started.

What is the Purpose of Valuation?

Although preparing the company for a sale is the primary goal of valuation, several additional reasons also make business valuation quite significant. A few instances of the several reasons behind the need for business valuation are:

• Reporting the company's obligations and assets helps identify intangible and tangible assets, guiding the purchase price allocation.
• A business valuation helps during your company’s funding process. A high valuation showcases your business potential, assisting investors in making informed investment decisions.
• Before applying for a loan, you must have the business valuation in place since it determines the loan amount your company is entitled to.
• Buy-sell agreements cover the guidelines for the equity movement between partners or shareholders.
• Negotiating a merger, acquisition, or sale depends on knowing the value of a company. This is thus the best fair market price accessible to the interested parties.
• You should conduct a business valuation before gifting, estate planning, or in case of the owner’s death. The IRS needs the company's valuation for charity donations.
• In case of shareholder disputes, a business valuation would cover the distribution of the shares the owners are selling.

Key Valuation Strategies to Maximize Valuation

• Income Based

Income-based valuation is all about valuing your company depending on its expected future cash flow. Two ways to do this are:

• Discounted Cash Flow (DCF): This method forecasts your future cash and discounts it back to the present value, so investors can see potential returns.
• Capitalization of Earnings: This method looks at historical earnings and values your company based on past profitability.

To get the most out of income based valuation, companies should optimize cash flow and have consistent earnings which impacts the perceived value.

For example by projecting earnings using models like Discounted Cash Flow or Capitalization of Earnings companies can identify growth areas and optimize cash flow. For example focusing on higher margin products can improve future cash projections and make the business more attractive to investors. Potential buyers or investors see the company as a good investment and therefore the value of the business increases.

• Market-Based

Market-based valuation compares your company’s valuation metrics to those of similar companies in the industry. A key technique here is Comparable Company Analysis (CCA), which uses ratios like price-to-earnings and price-to-sales. This is especially useful in industries where there are established benchmarks, where you can position your company against market standards, show competitive value, and attract investors.

To further narrow it down, CCA utilizes metrics, including EBITDA multiple, which values your company based on operating performance, excluding expenses like interest and taxes. If your company has a high EBITDA multiple, it is profitable and thus has a higher valuation.

For example: By looking at comparable companies, a business can see where it lags or leads. For instance, if competitors with similar revenue are valued more, it may mean the business needs to make strategic changes like increasing brand visibility or diversification. Aligning to what investors value will make the business more competitive and attractive and will drive up the value.

• Asset Based

Asset-based valuation is about the company’s tangible and intangible assets; it’s especially useful for businesses with a big asset base. Methods under this approach are:

• Liquidation Value: What assets can you sell if the company needs to liquidate immediately?
• Book Value: Uses the net asset value from the company’s balance sheet.

To get the most out of this approach you need to highlight your under utilised assets like intellectual property, brand value and physical assets. By showing these you can show your whole worth.

This shows the importance of having valuable assets like real estate or equipment. Knowing Book Value and Liquidation Value will make a company manage its resources better.

For example upgrading machinery can increase its productivity and selling under utilised assets can free up capital for growth initiatives. This will make the company more attractive to investors who value tangible assets especially for companies with a lot of physical resources.

How to Increase Your Overall Startup’s Worth?

Besides utilizing these valuation strategies, you can increase your company’s valuation by following the below steps:

• Focus on the bottom line - Companies' value comes from their bottom line of profitability rather than from their highest sales. When you are ready to sell your business, the buyer will view its earnings to ascertain its value. The primary focus is the cash flow, which guides the evaluation of the company's worth.
• Cut off expenses - Reducing expenses will help raise company valuation since it improves cash flow. It's about making sure your company runs effectively rather than cutting off all overheads.
• Cash flow optimization - You might not know, but your company most likely spends more than it should. One basic test is to find out your return on investment. While your advertising expenditure is measurable, an employee's contributions could be less. Consider whether your returns are more than your expenses. Were you able to monitor the return on investment?
• Diversify your revenues — When you are ready to sell your company to a buyer, they will not simply consider the financial value. They will also look at whether, over time, the revenues are growing and sustaining at much higher rates. This also emphasizes the requirement of including multiple options in the income, so your business must have several ways of earning money.

Strategic Valuation for Higher Returns

Eventually, you must take risks and actions to optimize the company's valuation. Proper planning and execution will help you increase your company’s worth. Utilize the right valuation strategy to optimize the value. The basic step is to hire a valuation expert to keep all the above factors in place and execute them smoothly.

These experts will prioritize improving your company’s valuation in a way that resonates with all your business stakeholders. Ultimately, business valuation is an ongoing process, so staying resilient and considering all your company’s nuances will help you in the long run.