To attract investment in a startup, it is very important to understand what proportion of the company you will be ready to give for a certain amount of money. Accordingly, it is important to be able to calculate the cost of your business project.
Firstly, you can evaluate a startup by taking a similar business as its basis, using a multiplier. But for this you need to have insider information on the transactions of the newly created company. Information about Ukrainian companies is often hidden from the general public, but it is easier to find information about foreign companies in open sources, therefore, as an option, you can take them as a basis, adjusting the total amount depending on the stage of development of your business project.
Secondly, if in the near future you expect to make big profits, you can evaluate a startup using the method of discounting risks, in other words, forecasting future business income. Often, the average forecasting period is from one to five years. Settlements should begin by choosing key positions that involve cash costs or revenues.
The sales forecast includes the following important points: the number of goods or services sold and the average price of the product. The forecast of cash outflows includes: direct costs for the manufacture of the product in the form of a percentage of product sales, as well as approximate amounts of other costs related to employee salaries, rental premises, administrative costs. And at the same time, be sure to include in your calculations 10% of the budget for unforeseen expenses (the purchase of office equipment, software, a patent, etc.).
The final indicator in calculating the cost of the project is the net cash flow, which shows the amount of money earned throughout the year. Another important point that should be taken into account when calculating the cost of a startup today is the discounting of cash flows, that is, accounting for the percentage of loans in the capital of the business or the cost of own investments and their share in the capital.
The final formula is as follows: net cash flow must be multiplied by the discount factor, as well as the number of calculated years. The resulting amount will be the value of your startup.
Of course, this is a simplified formula for calculating the value of the company, for a professional assessment of the cost of a startup it is better to contact the appropriate specialists. This service is an important line of business for any business accelerator, including the EX1P British Venture Accelerator. Experienced investment managers and EX1P analysts will help you calculate both the value of your company and the amount of investment needed to attract at this stage, taking into account the share of the company that you will be ready to give for a certain amount of money.