It is considered a best practice for startups to perform a basic valuation update every 6–12 months to track growth, especially when hitting milestones, exploring funding, or planning strategic decisions.
This practice helps founders make data-driven decisions and show sustained business progress to investors.
Let’s break down the what, why, how, and when of business valuation.
1. Why Should You Know Your Business Value?
- Make strategic decisions (hire? expand? reinvest?)
- Pitch with confidence to investors or collaborators
- Track your business growth in real terms
- Shift from “I run a business” to “I own an asset”
2. Common Valuation Methods (With Formulas)
1. Revenue Multiple Method (Easy + Quick)
- Formula: Valuation = Annual Revenue × Industry Multiple
- Example: If your annual revenue is ₹50 lakhs and your industry multiple is 3: Valuation = ₹50,00,000 × 3 = ₹1.5 Cr
- Best for: Product businesses, e-commerce, service providers
- Use when: Profits are still small, but revenue is strong
2. Profit (Earnings) Multiple Method
- Formula: Valuation = Net Profit × Industry PE (Price to Earnings) Ratio
- Example: Net profit: ₹10 lakhs
PE ratio for service businesses: 5
Valuation = ₹10,00,000 × 5 = ₹50 lakhs. - Best for: Service-based businesses with consistent profits
- Use when: Your business is mature and profitable
3. Discounted Cash Flow (DCF) Method (Advanced)
- Formula: Value = Future Cash Flows / (1 + Discount Rate)^n
- Translation: Estimate how much your business will earn in the future, then calculate what that’s worth today.
- Best for: Startups with projections, subscription-based models
- Use when: You have financial forecasts and want to show growth potential
4. Cost-to-Build Method
- Formula: Valuation = Total money invested to date + sweat equity
- Example: ₹8 lakhs spent + ₹2 lakhs estimated for founder effort = ₹10 lakhs
- Best for: Very early-stage ventures
- Use when: Revenue hasn’t started yet but work is in progress
5. Comparable Valuation (Market-Based)
- Formula: Valuation based on what similar businesses in your industry & stage were valued at.
- Example: A similar coaching business with ₹20L revenue raised funds at a ₹1Cr valuation — that’s your benchmark.
- Best for: Fast-moving industries like coaching, content, SaaS
- Use when: Looking to pitch or benchmark
3. Best Practices When Valuating Your Business
- Keep records clean – GST, income tax, expenses, everything
- Use 2-3 methods – Cross-check results to avoid under/overvaluation
- Don’t ignore intangibles – Your brand, community, content, or customer base has value
- Document assumptions – Especially for projected earnings or market size
- Get an expert view – Talk to a CA or business advisor if fundraising
4. When Should You Valuate Your Business?
- You’re launching a new product line
- You’ve hit a milestone (₹50L+ revenue, 1000+ customers)
- You’re exploring funding or partnerships
- You want to track growth year-on-year
- You’re hiring senior team members and want to offer equity as part of compensation.
Pro Tip: Do a basic valuation every 6–12 months. Track your growth. Celebrate your numbers.
5. FAQ's
That depends on your business stage.
- Use Revenue Multiple if you have good revenue but low profit.
- Use Profit Multiple if your profits are steady.
- Use DCF if you have strong future projections.
- Use Cost-to-Build for early-stage ventures.
- Use Comparable Valuation for industry benchmarking.
6. Bottom Line: You Deserve to Know What You’ve Built
As women entrepreneurs, we often underestimate our worth and so, our business’s too. But your brand, your customer base, your IP, your energy ; it all adds value.
Knowing your business’s worth isn’t just about numbers — it’s about recognition. Recognition of your effort, your impact, and your potential.
When you valuate your business, you shift gears from day-to-day hustle to long-term ownership. Whether you’re planning your next growth move or simply reflecting on how far you’ve come, let your valuation be your mirror and your motivator.
Even if you’re not planning to “sell” or “raise” — valuing your business helps you own it better. It says: “’I'm not just hustling. I’m building something valuable.”
Own Your Business Like an Asset, Not Just an Effort
Want help valuing your business?
Join the next HEN Finance Circle or drop your questions in the HEN community — we’ve got your back.
Article Contribution by: Sapna Garg