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Answering this big question has always been an issue for startups looking for investment.
Placing a valuation on young companies is a challenging tricky game, but it’s one small-business owners have to know how to play, especially when investment capital remains stubbornly scarce.
There has been several approaches to valuate your company:
1. Asset Valuation
It can be done by looking at the current assets of the company (should be shown in the balance sheet). You have to include physical assets: including machinery, office furniture, computers, inventory, prototypes (and the cost to develop them), and Intellectual Property including patents and trademarks.
Other valuable assets are employees and prncipals (usually called as management resources) in addition to customer relationships (represented by signed contracts and their value and I commonly name it as “networking resources).
2. Income approach
Looking at the asset value of a business can be complicated, as the numbers on the balance sheet may not accurately reflect the actual value of things like building and equipment after depreciation, or land value if the business is more than a few years old.
For this reason, some valuators prefer to use the company’s income before depreciation, interest and tax (IBDIT) are deducted to predict future earnings and the overall value of the company. IBDIT should reflect the true nature of the business, and as such should be based on the financial records averaged over the last 5 years, 3 years, or current year if that is more appropriate.
3. Market approach
Market approach is a vital method for valuation based on estimated earnings based on theoretical market demand. it is always preferred by young, asset-light startups looking to attract deep-pocketed investors. The bigger the market, and the higher the growth projections (ginned up by independent analysts), the more your start-up is potentially worth.
This method requires an assessment for competition and determining the barriers to entry. The stiffer the competition, the lower your valuation. On the flip side, the more fortified your company against new challengers (based on factors such as location, contracts with key customers, first-mover advantage, etc.), the more it’s worth. These intangibles translate into what’s known as goodwill–the amount a buyer might pay for your company above the value of the assets on your balance sheet. Goodwill can well bump up a valuation by a few million dollars.
It is also recommended to look at other similar companies that have managed to raise money–an exercise not unlike appraising the value of your house by comparing it to similar homes recently sold in your area.
More blog posts will be added about each approach with examples and fgures, stay tuned ! 
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