02
May

Why Does Business Valuation Matter? Here’s Why

Written by Best Financial Magzine. Posted in Small business valuation, Small business valuation methods, Small business valuation model

Business valuation firm

Business valuation tools are important for determining just how much companies are worth. This is valuable information whether companies are going public, or whether the company is going to be up for sale and the owners need an accurate assessment of worth. Business valuation is a multi-step process and requires several forms of information. It?s important for businesses to have both a balance sheet and an income statement. Also needed is three to five years of historic income statements.

Surprisingly, there are several methods of comparing business values. Business valuation experts typically look to the price of recently sold businesses with comparable business models, as well as the potential earning power of the company. Current assets are also taken into consideration, although by themselves they may not paint a full picture. The right evaluation method often depends on the particular needs of the individual business.

Using business valuation tools, let?s look at a company Nasty Gal, which has been considered an inspiring tale of female entrepreneurdom by some, and a poorly run business by others.

Nasty Gal, an online retailer, began as a simple ebay store selling secondhand clothing bought by founder Sophia Amoruso. In 2012, it was named the ?Fastest Growing Retailer? by INC Magazine, and today, it boasts over half a million global online customers.

So far, the picture seems rosy. Amoruso was able to build her site slowly but surely based on an appreciative fanbase, and moved from selling vintage items to items she purchased through a wide variety of retailers, many of them small businesses operating in America. In three years, the company experienced an incredible 11,200% growth rate.

From all this, we can determine that Nasty Gal is likely a company worth a lot of money. Numbers alone indicate the site will be making millions throughout the upcoming year — in addition to revenues from several new brick-and-mortar stores.

However, recent press pieces have been less than inspiring. Jezebel reported this April that 10% of the staff were let go on one day, including many of the company?s senior buyers, as well as numerous tech and creative positions. A similar shake up occurred in 2014, when 10% of the previous staff was laid off. Numerous reports have surfaced of the company being a ?hellish? place to work, with several pregnant employees being laid off as well — an image that doesn?t jibe all that well with the company?s ?girl power? reputation.

So, would business valuation tools place a high price on Nasty Gal? The company has promise for the future, especially considering a new CEO is at the helm. It may pay off, however, to wait a few years to see what direction the company is able to go in.

Business valuation services can help pinpoint exact value; let us know if this works for you.

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