Aside from having a job, starting and owning a business, investing in businesses, projects, and other potential ventures where one can earn profit from, are ways which one can earn money. When you have extra money to set aside for investing, it is the best way to earn money on the side. The question is, how will you know if the investment is worth it? How will you decide which investment venture is the best choice? How will you know the expected returns of the investment?
The best answer would be to conduct a business valuation and then create a Valuation model. This will help you determine the economic value of the business you plan to invest in. There are mainly three approaches such as the asset approach, income approach, and market approach, which are utilized by many valuation methods which you can apply for your model, such as:
• Profit Multiplier – Business Value is calculated by multiplying its profit.
• Comparables – Look at comparable company that was sold recently with known purchasing value.
• Discounted Cash Flow Method – Known as DCF, based on projections of few year future cash flows and is similar to profit multiplier but takes inflation into consideration to calculate the present value.
• Asset Valuation – Focuses on the net value of the assets of the business.
• Cost to build – Focuses on the cost of developing the project to determine the value of the business.
• Liquidation value – Applicable only to business that are out or about to go out of business. The value is determined via taking the total worth of the business’ physical assets except for intangible assets.
Now that you know some of the Valuation Methods, the important thing to do is to create a valuation model. This will need you to spend time researching, calculating, and analyzing. But this can be solved by using an easy to edit excel valuation template. In this era where downloading financial model template is better than creating from scratch, it is indeed a heaven sent to businessmen, entrepreneurs and even professional modelers or analysts to make their work easier.
Using an excel valuation template will help you save time, learn more about financing, and even give you choices on which valuation method you want to focus on. For example, at eFinancialModels, a platform where you can get Excel Valuation Template which included charts and visuals to represent the projections and flows in a business, also instructions to guide you on how to edit and apply the figures to calculate, helping you to smoothly and efficiently work on creating a Valuation model.