I’ve been working with business planning, venture capital, entrepreneurs, and starting businesses long enough now (more than 30 years) to realize that one of the most important but least understood concepts in valuation, which seems to be right on the front lines of the relationship between entrepreneur and potential investor, but rarely covered well in the business plans, and very often misunderstood. One problem is that “valuation” means something entirely different for the long-term small business, privately owned, not publicly traded, that needs to figure out what it’s worth for the purposes of estate planning, succession planning, gift taxes, divorce, and so on. In the world of entrepreneurs and potential investors, on the other hand, valuation is the opening salvo in a negotiation. How much do you need, and at what valuation, is the shorthand way of asking about pricing.
I’ve come to realize that there is a standard way to figure this out, so, after an interesting encounter at #sbbuzz last night, I decided it might be nice to lay it out on a step by step basis. So that’s why I got into the office this morning and wrote this post:
Continuing the Conversation is a new series of articles that will help us continue some of the great discussions that begin at one of our weekly #sbbuzz chats. While the fast paced weekly Tweetchat is a quick way to share tips and insights, it can also inspire deeper and broader discussions on a particular topic. We invite participants in the #sbbuzz chats to contact us with a direct message at @sbbuzz if you would like to contribute a guest article to continue an #sbbuzz conversation.