Today, many business owners rely solely on financial numbers to determine their company’s market value. At the beginning stages of launching a company, the value can be measured through tallying the assets, revenue base, earnings multiples, and a discounted cash-flow analysis. This approach, however, is only scratching the surface of uncovering the future value of one’s business.
The problem with only considering financials when evaluating a company is that it narrows the scope of the business to only short term insight. Early stage business owners are more focused on generating sales and revenue. These numbers are what represents the value of the business, but this does not consider the different categories that influence the value that the business can provide.
As a business grows and matures, it begins to shift from a focus on short-term revenue to creating long-term value. Value for a company should not be restricted to a fixed number but rather, should be weighed out on a range of numbers influenced by certain factors depending on the industry. Linas Jarasius and Jeff Herrick from the scaleup, InfoVera, speak about the importance of realising value for businesses beyond the financials.
Linas and Jeff explain how in the long run, the value provided from businesses should shorten negotiations with investors. “The biggest misconception for startups is that they know how to sell something but they do not know how to show an investor an opportunity through the eyes of risk awareness.” By expanding a company’s value beyond the hard numbers, potential investors can better understand both the potential opportunities and risks to expect in the future.
InfoVera, acts as a third party to business owners by informing investors and entrepreneurs of the true value of enterprises. Currently, InfoVera is a market leader in this space, as they provide a unique service that previously did not exist in the market.
This process for distinguishing value among enterprises can be compared to the process of purchasing a car. When buying a new car, it is easy to compare the standard pricing for the vehicles. But in order to unveil what the car can truly provide to the customer or investor, one must look past the price tag and see what features the vehicle has, as well as its records and reviews. Business owners need to apply this perspective and critical thinking by utilising a voice from a party that has no invested interest or personal motives.
As innovation grows and competition rises for businesses, value seen past the financials becomes even more important to investors. The focus begins to shift from pushing for revenue to pushing to achieve equity opportunities as companies further develop. By understanding that one’s business value goes beyond just the financials, it can bring an insight into the future and therefore facilitate continued growth for one’s enterprise.