9 Factors That Affect The Value Of A Startup

As we have already mentioned the importance of valuing your startup, an increased startup value directly means that you are excelling in your startup, and your continuous struggle will indeed bear fruit. However, how can you ensure that your startup value is increasing?

Luckily, we have compiled the most influential factors that will change the future for your startup, and taking care of these factors will surely increase the value of your startup:

1.       Burn rate Of The Startup

The burn rate is when a new corporation uses up its venture capital to finance overhead before generating apparent cash movement from operations. As the burn rate is lower, the company is expected to survive for a more extended period, and therefore the firm's value is expected to be higher.

A simple example can understand this phenomenon. If your monthly expenditure of the startup is around 5000 USD and your bank account holds 5000 USD, you are more likely to go bankrupt in one month. However, if the monthly expenditure of your startup is 5000 USD and you have 60,000 USD, you are likely to go bankrupt in one year, even if you are making no profit from your startup.

Burn rate is especially an issue for startup companies typically unearnable in their early stages and is usually in high-growth industries. It can take years for a corporation that will generate earn from its sales or revenue and, as a result, will need an adequate supply of cash on hand that will meet expenses. Thus, you need to keep track of your burn rate to ensure that your business keeps on running without any obstruction.

Your brand name represents who you are and what you do with your products.

2.       Business Idea

The business idea is what you most commonly decide before starting the business. However, new ideas can be incorporated into the startup even after it is in function. However, before implementing a business idea to your startup, you should analyze whether your business idea is up to par or not. And for that, you need to check whether the business idea is scalable or not. Scalability is a business idea that allows it to grow exponentially required to evolve into a large business. A scalable business will increase its revenue from $50 a week to $100 per week without doubling costs. If the idea progresses as a scalable one, it is worth pursuing.

Moreover, your business idea should be sustainable, and you need to check whether your idea has a multi-year plan. Great business ideas need to be sustainable in two regards which means that they should have access to resources and a vision. If you have sufficient resources to continue your business and plan for the future, you are good to go, and your startup value will increase gradually.

3.       Capital Turnover Value

The capital turnover value is a thing that should not be avoided while increasing the value of a startup. The capital turnover rate should always be 1.5:1 or 2:1 if you want your startup value to improve continuously. For that, you need to have an appreciable increase in sales and the profit you make with the sales.

Once the turnover value is more significant, your capital and stakeholders will be ready to invest more into the company and back you with risks and other steps for your business.

4.       Brand Name

You might think that brand name does not affect the success of your startup, but that thought is entirely wrong. Your brand name represents who you are and what you do with your products. A client will never be attracted to a familiar brand name that has no thought.

As your brand name is your brand identity and your representation, it should be top-notch to attract stakeholders, clients, and customers as much as possible.

5.       Switching Prices

"As a rule, investors prefer collaborating with management teams who are flexible and willing to refine their business model or strategy to reduce risk and provide a successful exit strategy to investors." (Adams, 2018) You need to show your investors that you are flexible in your business and ready to make the necessary rusks to increase the startup's value.

Switching prices is one of the safest ways to increase the value of your startup. If you open your startup and try to sell products at high prices, it is evident that people will not buy them. However, if you start with a lower price and gradually increase as the product becomes popular, you will have more profit and thus a higher value for your startup.

6.       Legal Protection

Legal protection is a debatable thing that can either make your startup completely protected and fool-proof, or it can be a burden that will cost you extra money. However, suppose you have a deal that involves protection from competitors and it is available at a lower price. In that case, you should take the opportunity and protect yourself from the evident competitors in the market that offer the same products as you.

7.       Cost Advantages

What if you do not have the means to lower the prices for the customers? How will you gradually increase profits?

This method is by offering more at the same price as the competitors. If you are selling something with the same market price as the others, try providing them with more quantity and quality than the other brands, and it will become your strength.

8.       Choosing The Strategy According To The Startup Type

Can the same strategy as your competitors work for you too? No!

You need to know that the type of startup affects the revenue you make and the techniques you adopt to make your startup successful.

"Small- and medium-sized enterprises (SMEs) are considered to have potential innovation capabilities and can create new market opportunities." (Du and Cai, 2020) On the other hand, more prominent startups are riskier and need different strategies to improve. You need to evaluate the method you use according to the startup type. Only then will you be able to increase the value of your startup.

9.       SMART Monthly Goals

What about the goals of your startup? How can your goals be the right thing for your startup, and how can you ensure that the goals you are pursuing are the correct type?

You can structure your goals to be "SMART." That can be done by checking the following features in your plans:

• Specific
• Measurable
• Achievable
• Realistic
• Time-Bound

To sum up, in this valuation blog, we have listed nine factors that affect the value of a startup. However, the value of a startup company can be calculated using various valuation methods. Equitest platform offers a simple business valuation tool that enables anyone to find equity value in a matter of minutes.