Private Company Valuation

Determining the value of a private company is not for the faint of heart. To do it right requires detialed inside information about the company's financial condition and specialized accounting knowledge. It also helps to have an MBA or a CPA. Preferably both. However, a non-accountant can use some tools to make a best guess based on comparision to other companies.

Before doing anything, check to see if your target private company has made any public filings with the SEC.  I recommend Rank & Filed or the SEC’s own full text search form.  See here for why they would do that (scroll to “When do private companies have to make public disclosures?”).  If you find anything, it may not disclose the value of the company or your prospect’s investment in it, but it may fill in some information that would otherwise be hard to find.

The one metric that is routinely reported in business directories for private companies is annual sales.  Note that the figure reported may be out of date or simply wildly inaccurate - but it may be the only data point available for calculating company value.  To value a company based on sales, you need something else: a ratio of sales to value.  

Ratios can be obtained from various sources, mostly for a fee.  See BV Resources, for example. Other pages provide a limited list of ratios and other metrics.  Examples are BizStats and NYU’s site.  Following the strategy used by NYU, you can also establish your own ratio benchmarks using ratios set by public companies in the same industry as your target company.  See GuruFocus for an excellent source of such ratios.

david.lamb@lambresearch.com © David Lamb 2020