The variation in Excel templates to do this will primarily lie in how granular they are. At the simplest form, you can take the businesses EBITDA and multiply it by some industry averages for what those types of business usually sell for as a multiple of EBITDA. The same thing goes for SDE (seller's discretionary earnings). This Excel template focuses on the EBITDA valuation method. I also built a general business valuation model in Excel that walks the user through how to calculate EBITDA, SDE, DCF as well as provides options for multiple variables that produce a range of potential values low to high.
The other way is with a DCF Analysis where you estimate future cash flows and discount them back to the present value. In this, the WACC is vital and there is a process to determining that (the proper discount rate to be used).
It comes down to industry knowledge and techniques. If you ask 100 different valuation experts to come up with a valuation for a business, you will likely get 100 different valuation amounts. There will likely be some consensus as to a range though and that is what you want to try and understand.
The quantitative factors are what Excel is good at putting together and that is a major weight in coming up with what a business is worth. There are many styles and methodologies used to put the numbers together, for example, some will look at the past 4 or 5 years of EBITDA and weight the years based on various factors.
If you are looking for a more advanced Excel template, this LBO model goes through all the generally accepted quantitative styles to come up with a purchase price, test leverage scenarios, and see if the expected future cash flows justify a given purchase price.
There are other factors that may be harder to quantify though and would inform some of the inputs used for a valuation.
Non-Quantitative Business Valuation Considerations - Many of these factors can influence or play a part in coming up more sound quantitative inputs.
Non-quantitative methods of business valuation rely on subjective analysis and expert judgment rather than strictly numerical analysis. Here are some of the key non-quantitative methods:
Comparative Company Analysis (CCA): This method involves comparing the business in question to other similar businesses that have been sold recently. While this method does involve some numbers, the emphasis is on understanding the market conditions, industry trends, and qualitative aspects of both the business being valued and the comparable businesses.
Market Capitalization: For publicly traded companies, the market capitalization (the total market value of a company's outstanding shares) can be used as a valuation method. However, this method is influenced by investor sentiment, market conditions, and other non-quantitative factors.
Brand Value: Assessing the value of a company's brand can be a significant part of its overall valuation. This involves evaluating the strength of the brand, its reputation, customer loyalty, and other intangible factors.
Industry Expert Opinion: Seeking the opinion of industry experts who have a deep understanding of the business and its market can provide valuable insights for valuation. These experts can provide qualitative assessments that take into account factors that might not be immediately apparent from quantitative data alone.
Management Quality: Evaluating the strength and effectiveness of a company's management team is a crucial non-quantitative aspect of business valuation. A strong leadership team can significantly enhance the value of a business.
Intellectual Property and Patents: The value of a company’s intellectual property, including patents, trademarks, and copyrights, can be a major component of its overall value. Assessing the value of these assets requires a deep understanding of their potential market impact, legal strength, and relevance to the company’s business model.
Customer Relationships and Contracts: The value of existing customer relationships and long-term contracts can be a significant part of a company's valuation. Assessing the strength and stability of these relationships requires a qualitative analysis.
Strategic Value: Sometimes a business has a strategic value to a particular buyer that is above and beyond its financial value. This could be due to synergies with the buyer’s existing businesses, the acquisition of key technologies, or the elimination of a competitor.
SWOT Analysis: Conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can provide a comprehensive view of a company’s position in the market, its internal capabilities, and external challenges. This analysis is largely qualitative and relies on expert judgment.
Cultural and Social Impact: The cultural and social impact of a business can also play a role in its valuation, particularly for businesses that have a significant brand presence or are involved in media and entertainment.
Legal and Regulatory Environment: Understanding the legal and regulatory environment in which a business operates, and assessing potential risks and opportunities in this area, is a crucial non-quantitative aspect of valuation.
These non-quantitative methods often complement quantitative methods to provide a more comprehensive view of a company's value. They require a deep understanding of the business, its market, and the broader industry, and they rely on expert judgment and subjective analysis.
Download my entire library of financial model templates here.
