Value (like beauty) is in the eye of the beholder - and this is never more apparent than when one is evaluating an emerging or established business.'' When introducing your company to potential investors and partners, a significant portion of the conversation typically revolves around the value of the entity and how much it's worth in an arm's length transaction. Without the proper grounding, you stand at a distinct disadvantage when negotiations of this nature arise. In this webinar, Kleos Africa consultant and Beta Gamma Sigma member Babatunde Akin-Moses will take you through the fundamental principles which every business professional should know about the art and science of valuation. Babatunde brings to bear his considerable technical expertise as a PwC and KPMG-trained chartered accountant and First Class economist. He will also draw upon his experience as a technology entrepreneur and CEO of Sycamore, a peer-to-peer lending platform that connects lenders to borrowers using technology.

1. Business
Valuation
Simplified
Babatunde Akin-Moses: Kleos Africa Consultant

2. 1. ABOUT ME
2. WHAT IS BUSINESS VALUATION
3. IMPORTANCE OF BUSINESS PLAN VALUATION
4. METHODS AND TIPS FOR BUSINESS VALUATION
5. YOUR QUESTIONS, ANSWERED
6. QUESTIONS?
2
TODAY’S AGENDA

3. ABOUT ME

4. • Born in Lagos Nigeria.
• Graduated from Bowen University with a
B. Sc. In Economics.
• Worked at Shell, KPMG and PwC.
Currently work at Sycamore, a peer to peer
lending startup I co-founded in 2019
• I am also a chartered accountant, and MBA
holder from Lagos Business School.
4
ABOUT ME

5. WHAT IS BUSINESS
VALUATION?

6. • Definition: Business valuation is
the process or set of procedures,
used to ascertain the economic
value of a business, a unit, or an
owner’s interest in a business
• It is essentially the worth of your
business in monetary terms. Do
you have a number for this?
6
WHAT IS BUSINESS VALUATION?

7. IMPORTANCE OF
BUSINESS
VALUATION

8. 8
▫ “Price is what you pay, value
is what you get”
- Warren Buffet

9. • You may need to sell the business
• You may need financing (debt or equity)
• To properly assess a business you want to buy
• To evaluate the progress of your business
• To manage shareholder disputes
• To issue stock options to employees
• To compare with a similar/competing business
9
WHY IS IT IMPORTANT?

10. METHODS OF
BUSINESS
VALUATION

11. METHODS OF BUSINESS VALUATION
11
Conventional
• Asset based
• Market value
• Cashflow
• Multiples
Unconventional
• Management worth
• Industry specific
• Entry cost
• Intangible asset

12. • This is by far the fastest way of valuing your business.
• You can use this method to estimate the lowest selling price (if you are in
the process of negotiating)
• To get this, simply add the value of all your assets, and subtract it from the
total of all your liabilities. The resultant amount is known as net assets,
book value or the equity value of your business.
12
1. Conventional: Asset based

13. • This is basically what the amount that other businesses, that are similar to
yours have sold for.
• For example, if you run a barber shop, and all barber shops in your region
have been selling for say $10,000, then that’s the amount most people
would be willing to pay. Information is necessary to get this method right.
• To make sure that the comparison is fair, check that the company you are
comparing to is in the same industry, has a similar asset base and operates
in a similar jurisdiction to yours.
13
2. Conventional: Market Value

14. • This method can be a bit technical and difficult for startups, because it
assumes one of the following:
a) The business is already generating cash
b) The business will start generating cash at a fairly predictable time
▫ This method tries to estimate the value of a business today, based on the
cashflow it is expected to generate in the future, and discounting those
cashflows to their present value today
14
3. Conventional: Discounted Cashflow

15. • The following steps need to be carried out:
a) Determine cashflows by adding non-cash expenses and taking out capital
ones
b) Grow these cashflows by an estimated growth rate
c) Choose a discount rate which you will use to convert cash to today’s value
d) Calculate a terminal value (TV) – how much can you sell the business?
e) Value the business by discounting cashflows and TV to present value
f) Subtract debt to get equity value
15
3. Conventional: Discounted Cashflow (2)

16. • Businesses are often valued based on their price to earning (PE). That is,
the amount people are willing to pay for every unit of profit they earn
• However, a lot of small companies are not profitable, so most of them use
price to sales ratio (PS). Facebook, Twitter and LinkedIn all used PS ratios
when going public
• The PS to use depends on salient factors like your industry, amongst
others. For instance, tech companies have high multiples than established
industries
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4. Conventional: Multiples

17. 17
Unconventional
Management
Value
•The team that leads a
company can
determine the value
Industry
Specific
•Some industries
accept valuations
based on number of
customers
(WhatsApp), some
use value of goods
sold (E-commerce)
Entry Cost
•How much would it
take to set up a
business, that
achieves everything
you have at this point?
Intangible
Assets
•Your business may
have some patents,
trademarks or
licenses that may be
worth considering
over every aspect of
your business

18. • Keep very good financial and
regulatory records
• Do several valuation methods to get
the best one
• Get an expert to help you if need be
• Negotiate, Negotiate, Negotiate!
18
TIPS TO CONSIDER

19. YOUR QUESTIONS,
ANSWERED

20. 20
What is the trick to placing a hold
decision above a sell decision on the
stock of a company?

21. • Revenue multiples is a good place to start
• Market comparables are also good if you can find them
• The easiest might be to value the skill of the management team
21
1. Which is the best method for valuing an SME
without regular cash flows e.g. a good processing
company?
2. How can I value a Startup?
3. Can you value a company that is in its Startup
mode?

22. • See previous answer
• The easiest way is to ask for how much you need, and justify it
• Negotiate!
• Do you want 100% of your start-up or 1% of MTN?
22
How do I evaluate the worth of my
business in deciding equity to give to an
investor?

23. • Always!
• I suggest you always have a value in mind.
• However, it is usually most important when you want to raise money for
business expansion
23
What stage do I need to value my
company?

24. • Covered in slides.
24
What are the basic principles of company
valuation? Products and Services Startup
evaluation

25. • Strictly speaking, goodwill only occurs in a business combination
• It is the excess of consideration, over the net asset value of a business after
its been acquired
25
How can one value good will of a
company ?

26. • Sometimes, yes. When the methods covered are used
• Most times, it isn’t. Perception, current industry sentiments, and
entrepreneur’s negotiation skill matters a lot.
26
Is valuation truly an objective exercise ?
I saw the debacle with Wework and I
ask whether people use valuations to
inflate their idea of value of their
business

27. • Cashflow – as suggested by Warren Buffet
• Valuable assets – like patents, trademark and technology
• Sometimes, customer base
• Management skill
27
What are the keys things to look out for
in order to know if a business is valuable
or not

28. • It depends on who needs the valuation. Some investors would insist on a
professionally prepared one
• Besides selling, you might need it to resolve shareholders’ dispute
28
Does one need a professional to value
one's business? What situations
(besides selling) would one need to
value one's business?

29. ANY QUESTIONS?

30. Place your screenshot here
30
You can find me on
the KLEOS Africa
Website if you are
interested in my
services.
https://www.linkedin.com/in/babatundeakinmoses/
Contact Info