THE PROBLEM OF BUSINESS VALUE

Businesses are products.

They should be perceived as products by their founders. A business is not sustainable as long as it does not have an exchangeable planned journey. It is just something circumstantial, with some present scenarios, but essentially no future. Besides a set of behavioral qualitative aspects, a transaction requires a price.

In this context, one question is pivotal: How much is your business?

Answering this question is costly. The traditional method is due diligence. There are some simplified methods that set up a price based on similar deals. Besides costly, methods are inaccurate. They are profoundly affected by the consultants’ and entrepreneurs’ behaviors and knowledge. 

There are three key aspects worth mentioning:

  1. Numbers are not accurate in the entrepreneurial area;
  2. Valuation is subjective in any circumstance;
  3. Valuation is behavioral.

So why spend a lot of money for a service seemingly affected by subjectivism and inaccuracy?

The best scenario is to shift the approach from valuation to value simulation. This approach may give a better view on what the value of business is.

Two definitions are required:

  1. Valuation is a financial method of firm’s value calculation. The method is costly, as it implies specialized consultants and a long-lasting investigation approach. The method is used for acquisition or investment; it is an emotional journey that is extremely expensive. The result may be punctually used only in possible immediate transactions.
  2. Value simulation is a subjective method of creating an image about the firm value. It can be done by selecting some quantitative and qualitative indicators, to be processed by an algorithm for simulating the value related to a business context. The method can dynamically be used for setting up scenarios and images about the business value and its evolution. It is a reliable tool for setting growth strategy and management education. Entrepreneurs can know aspects about the business value in any possible discussion and negotiations; in this way, it is a great knowledge asset.

Key Benefits of Value Simulation:

  • Value simulation method is a rapid tool for entrepreneurs, who aim to shift the focus to investment;
  • Value simulation is a strategic tool for the growth of the firm value;
  • Value simulation method is educational as long as entrepreneurs can learn how to adapt their management focus for business development.

During the last 3 years, ventacy.com has built a reliable business value simulator. It is now available for USA and Europe.

Leave a Reply

Your email address will not be published. Required fields are marked *