One of the best things about business is that anyone can enter it! Anyone can have a great idea that will make them money. Still, it takes time, resilience and determination to make it work - which, let's be honest, makes for quite a challenging package! Not every entrepreneur we know (and admire) knew all they needed to before starting a business or, in fact, was successful the first time.
Examples of successful entrepreneurs!
Let's take a look at some of our favourite success stories.
- Jessica Alba faced three years of rejection when she pitched her business, The Honest Company; the company is now worth £1.26 billion!
- Brian Chesky tried to raise £115,000 in exchange for 10% of Airbnb; seven big-time investors passed, Airbnb is now worth £25 billion. We bet those investors are kicking themselves!
- It took James Dyson 5127 tries to get his first vacuum right, but now he's worth £3.1 billion, proving patience pays off.
- Shaun Pulfrey, the Stylist and Creator of the Tangle Teezer, was laughed out of Dragon's Den but didn't let the setback knock him down. Instead, he invested his entire savings into the venture and last year alone, the company turned over £30 million. Not feeling so hot now dragons!
Above, we've spoken about how much those successful businesses are worth, but how do you value a business, what factors go into the valuation, and why do a valuation in the first place? Let's dive in.
How do you value a business?
Carrying out a valuation of your business is an excellent way to examine its financial health and moneymaking potential. It can help you pinpoint underperforming areas and focus on the approaches that are working well.
There are loads of factors that can impact the value of your business, from its age to the current and future profitability of your business assets. Below are some key areas to consider before you start tallying up the total value of your business:
If your business has experienced, loyal staff who are likely to stick with the business through thick and thin, that can add value to your business. You should also think about leadership - do they help motivate their employees and lead by example?
Detailed records showing how you have managed the business costs. This includes well-evidenced past, present and future cash flow and profit projections, and the level of debt the business is currently in can all have an impact on your business valuation.
This includes everything from your company's growth potential and reputation to trademarks, intellectual property and the strength and profitability of your relationships with customers and clients; each has an accumulative impact on your business valuation.
The physical assets that your business has acquired to help with the day-to-day running can also boost your business valuation; this includes assets such as your business premises, equipment (including computers, tools and stock) and the number of clients and customers you have.
The general condition of the economy, including interest rate levels and the overall demand of your business's services, can affect your business valuation. A saturated market, with many companies like yours operating in the same space, can devalue your business.
What is equity?
We've spoken about how you would value a business, so now seems like a pretty good time to touch on equity. Essentially equity represents the value that would be returned to a company's shareholders (people that have invested in the company) if all of the assets were liquidated (turned back into cash, eg buildings and equipment sold) and all of the company's debts were paid off. The calculation is equity = total assets (anything you own that is worth money) - total liabilities (any debts).
When we think of equity, we have to think of the structure of the business. If someone owned the business in its entirety, they would have 100% equity. However, using Dragon’s Den as an example, if the dragons decided to invest in a company for a percentage of the equity, then the companies equity would be split according to the percentages of equity owned. If we say a company is valued at £100,000 then if someone (a dragon!) owned 10% of that company their equity would be worth £10,000 (10% of the £100,000).
What is revenue in business?
Revenue is the income earned by a business over a period of time. The amount of revenue earned depends on two things - the number of products/services sold and their selling price. The formula is revenue = price x quantity.
For example, the total revenue raised by selling 1,000 items priced at £50 each is 1,000 x £50 = £50,000.
Revenue is sometimes referred to as sales, sales revenue, total revenue or turnover. It's important to note that revenue is not profit. Profit = total revenue - total expenses. Revenue is money earned, but profit is money earned minus money spent.
What to know more about running your own business?
We’ve covered a lot in this article, so congratulations on keeping up! You’ve clearly got a real interest in business, so why don’t you check out our business management virtual work experience programme? You'll learn loads about the different functions within a business from finance to human resources, take part in quizzes and activities and question the experts.