Eqvista Business and 409a Valuation Calculator User Guide

The Eqvista 409A valuation calculator helps to give you a preview of your 409A valuation report.

Do you know what the value of your business is? Well, using a business valuation calculator, you would be able to get the value of your company. A business valuation calculator helps you in obtaining the overall value of your business and gives you an idea of how much your business can be sold for. Eqvista has created an advanced business valuation calculator that can help you.

So, if you have not used Eqvista till now, it is time to give it a try. And if you have had the chance to use our application, you should also try out the Business Valuation Calculator. The Eqvista 409A valuation calculator helps to give you a preview of your 409A valuation report. This is a guide that would help you walk through the 409A valuation calculator step by step.

Disclaimer: It should be noted that even though this content is based on our years of experience in venture capital, valuation, and finance, it should not be used as professional advice. This tool is just a tool and isn’t a solution that would help you stay away from a proper IRS audit. You are the one responsible for the end results of the business valuation at the end of the day. We just provide tips to help you use it more effectively. This guide and business valuation calculator does not help in offering the “Safe harbor status” which is needed by the IRS. To obtain the safe harbor, you will have to follow the rules set by the IRS 409A, and get a qualified third-party expert to do the valuation of your company.

We hope that this guide will help you understand all about the valuation terms and how to use the Eqvista 409A valuation calculator. Feel free to let us know any feedback or ideas that you have here!

Business Valuation Checklist

Business valuation basically means the steps to obtain the economic or sale value of a business. It tells you the worth of a business. There are a lot of good reasons for a company to obtain its business valuation. But let us assume that your company is just a startup. This can also mean that getting a valuation would not be easy and there are some things you need to consider. In fact, the Eqvista business valuation calculator would only be useful if your company meets the following criteria:

  • The company hasn’t raised more than $500,000.
  • The company isn’t anticipating an IPO in the next 6 months or an acquisition in the next 3 months.
  • The company has no convertible securities or preferred security.
  • The company hasn’t raised funding via convertible security instruments including convertible notes, SAFE, and KISS.
  • No shareholder has sold their stocks in a secondary sale.

Once you have checked these, it is time to gather other details for the business valuation checklist that would help you get the value of your business. These financial information includes the following:

  • Details of all major assets
  • Last 3 years cash flow
  • Last 3 years profit and loss statement and the balance sheets
  • Management accounts, if any
  • Details of all the major leases, tax, creditors, borrowings, liabilities, superannuation, and other employee entitlements.
  • Details of any contingent liabilities
  • Any profit/cash flow projections
  • Budgets and performance to past budgets

Obtain the market information including:

  • Market share the business has
  • Spread of suppliers
  • Spread of customers
  • Check any barriers to entry
  • Competitors – who are they and how many are there
  • Market this business in – industry

Analyze the information obtained:

  • Type of income
  • Profit margins
  • Business stability

Other things that usually affect the business value:

  • Industry life cycle
  • Quality of management
  • Skills required of management and staff
  • Reliance on owner operator

Using all these details, you will have to get the following values to use the business valuation calculator:

  • Industry
  • Years in business
  • Total common shares
  • Total assets
  • Total revenue
  • Total profit
  • Future growth rate

Valuation Terms You Should Know

As mentioned above, you need a few values to obtain your business value using the Eqvista business valuation calculator. The definition of these terms are:

  • Industry – An industry is a group of companies that have related business activities. So, a company comes under an industry based on the kind of products or services that they are offering.
  • Years in Business – It is the total number of years that the company has been operating since it was created, and is also called Year-Over-Year (YOY). This term is used a lot for financial comparisons when comparing some measurable events annually in a company. It is used to check if the performance of the business is improving, worsening, or just static.
  • Common Shares – This represents the ownership of a company and is considered a security. The people that own common stock in the company, own a percentage of the company. This ownership comes with rights in having a say or vote in major decisions of the company. These people are called the shareholders and also earn a profit based on the amount of ownership they have in the company.
  • Total Assets – This is the total assets that the company owns which includes both tangible and intangible items including trademarks, patents, machinery, software, capital, real estate, and so on. The value of all the things that the company owns is considered the total assets of the company.
  • Total Revenue – This is the total amount of capital that the company earns when it sells its services or products. There are different kinds of revenues such as the net revenue and gross revenue, that combine to become the total revenue in the company.
  • Total Profit – This is the total money that the company has left after all the company expenses have been deducted. It is the total revenue that the company retains.
  • Future Growth Rate – The future growth rate is the forecasted growth rate of that company. This rate usually shows how the company’s future profits and revenue would be affected. For startups, this figure is usually high, while for the companies that have been established, this figure is low.

Valuation Approaches

There are three main valuation types that are used mostly when calculating the value of a business. These include:

  • Income approach – In the income approach, the company is valued at the present value of its future earnings or cash flows. This is determined by projecting the earnings of the business and then adjusting them for changes in the cost structure, taxes, growth rates, and others. The present value of the company is derived using a discount rate (learn more about it here) that helps in reflecting the rate of return of the investor.
  • Asset approach – The second method used is the asset-based approach where the value of the company is determined using the total value of the assets in the company. Both the tangible and intangible assets are taken into consideration here and then the total asset value is considered to be the value of the company. Just to be clear, the value of the assets are obtained by comparing them to similar market assets. Although, it does get difficult when it comes to obtaining the value of intangible assets like trademarks, copyrights, and so on. But again, a professional usually uses all their knowledge and understanding to get the most accurate value.
  • Market approach – The market value approach is just what the name says – it is the process where the value assigned to the business is based on its comparison with other similar companies in the market (that have similar assets, services, and so on). The comparison is usually done using a market quote of listed securities of a comparable public company, an ownership transfer transaction involving a comparable (public or private) company, and/or a prior transaction involving the same business.

How to Value a Business at Different Stages in Its Growth?

It is very easy to get the value of a business that has been there for more than 30 years or so as compared to valuing a startup. And this is simply because the startup has fewer years of operation and financial statements. This makes it very tough to know how large the brand would turn out to be in the future. On the other hand, a business that has been operating for the last 30 years has years of financial statements and is even an established brand. So, getting the value of this company would be much easier. In short, valuing a business at different stages of its growth cycle is difficult, where the difficulty level reduces as the age of the company increases.

Due to this challenge, it is normal for small companies to use different methods, and then project these numbers to get general estimates of the worth of the business. These values are reconciled and that then helps in getting the final value of the business. To get a more accurate value of your business, it is always advised to speak to a professional valuator. They can help in getting the most accurate value of a business. And even though talking to an appraiser can cost you some money, the final benefit would be worth it.

Valuation Calculation Methodology

If you have all the details that have been shared in the business valuation checklist, then you can move ahead and begin to use this valuation calculator to get your business value. But in case you do not have all the values, then it will be tough to get a proper outcome. The calculator has been created in a way where you can easily create possible outcomes for your company based on your situation and get the final value accordingly.

Let us take an example company, XYZ Inc, to understand this process. XYZ is a startup company in the Financial and Insurance industry that is looking to raise funding for their company. So the company needs to get a valuation done. And while looking online for a business valuation calculator, they came across Eqvista.

A little background of the company:

  • Sector – Financial and Insurance
  • Years in Business – 4
  • Common shares – 1,000,000
  • Total Assets – 400,000
  • Total Revenue – 370,000
  • Total Profit – 50,000
  • Future Growth Rate – 30%

Here is how they used the business valuation calculator step-by-step

Step 1: Using the details accumulated, add the company details in the fields – industry, years in business, common shares, total assets, total revenue, total profit, future growth rate – as shared below:

add the company details

Step 2: With this, you will instantly get the company’s forecast values as shared below:

company’s forecast values

The profit value and present value for all the next five years can be seen easily in this company forecast. From here, you can see that the profit of the company will increase to about $142,805 after 5 years since the growth rate was predicted to be 30%.

Step 3: The next part of the business valuation calculator shows the total value of the company. The graph below breaks down the total value based on each valuation method. It works in a way to reconcile the values and gives you the final company value that you are looking for.

final company value

You can clearly see that using the income approach, the value is determined as $482,884.84, and using the asset approach the value is $400,000. With the market approach, the value of the XYZ company is $489,000. The weight percentage is 33% for all the values since there is no drastic difference in the values. This gives us the final output:

  • Total Value: $457,294.95 (The value of the company)
  • Common Shares: $0.46 (value of one common share in the company)

And using this process, you can obtain the value of your company with the Eqvista business valuation calculator.

Disclaimer: This business valuation calculator is purely for information purposes only and should not be considered otherwise. Use of this is at the risk of the preparer, where you need to take full responsibility for the given inputs, calculations, and assumptions of the report. Eqvista Inc. assumes no responsibility nor liabilities for any consequences from the valuation results for your company. Eqvista does not have any obligation to defend or represent any part of the calculations or assumptions used in this business valuation calculator to get the results. Hence, it should be taken “as is” without a warranty of any kind. It should be noted that the results of this do not give you the “safe harbor” status required by the IRS as per the 409A regulations. Nor does it serve as a valuation opinion or independent qualified appraisal.

Get Your Company 409a Valuation from Eqvista

The business valuation calculator is just there to help you, but as mentioned before, it cannot be considered as the final tool for your 409A valuation. You will have to hire a professional to look into things manually and prepare an IRS-defensible valuation report. Eqvista can help you with it. Checkout our price list or contact us today!

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