James Tuckerman, Editor-In-Chief, Anthill Magazine

A couple of days ago, I caught up with an old school friend. When the topic of Anthill came up, he said with obvious but ill-directed admiration, “You must be a millionaire!”

‘If only that were true,’ was all I could think, before delivering a suitably ambiguous Cheshire grin and dropping a generous tip (the service was exceptionally good).

So, why am I not a millionaire? Anthill must be doing OK? (You might think.)

Well, to be frank, a business is only worth how much someone else is willing pay for it. And, until that time, it is worth the amount of profit it delivers to its owner or shareholders.

It’s also worth the pleasure it brings to the entrepreneur, of course (which is why I described my friend’s admiration as ‘ill-directed’, as it reflected his measure of success, not necessarily mine).

However, to get to the point, this harmless and well-meaning comment by my old acquaintance got me thinking. It initiated a ripple of thoughts, culminating in one final question…

How much is Anthill actually worth?

Understanding the value of any given business or opportunity is, of course, vital to its long-term success.

Firstly, because financial valuations are useful as a sanity check. (Am I treading forward or backward?)

Secondly, because knowing the value of a business allows you to reward staff with equity. (How can you allocate options without knowing the company’s fair value?)

And thirdly, because the value of your company is the first thing a potential investor or buyer will ask in the event of a capital raise or trade sale.

Yet, even the most sophisticated investors still describe private company evaluation as a ‘black art’.

So… over the next new few weeks, I plan to review five different aspects of valuing a private company. And, of course, I’ll be seeking your comments and observations along the way (call it learning by teaching).

Therefore, if you are interested in the value of your business, or if you are interested in the potential value of your business opportunity, read on. If you are an expert in this area, please join the conversation and help inform our readers (including yours truly).

To get the ball rolling, I propose that this blog series consider the following five topics:

Terminology (Liquidity Event, Hurdle Rate, Pre-Money Value, Post-Money Value)
Comparable Method of Valuation
Discounted Cashflow Method of Valuation
Profit Multiple Method of Valuation
Strategic Buyer Method of Valuation

If you have any further suggestions, please don’t be shy, as together we attempt to explore the ‘black art’ of business valuation.