I usually don’t advise putting valuation in on a business plan. The valuation could lock you in. It might be possible that a prospective buyer or investor might be prepared to offer an even higher valuation that what you would’ve thought of and you just might be selling yourself short by putting a number in. Conversely, you might scare some people away before they’ve had a chance to really fully understand the value that you have to offer with your company.

However, that does not mean don’t bother thinking about valuations. Instead that means to go ahead and think about it and be prepared, but just don’t have it put down in the particular business plan.

I would generally suggest there be some information that you have available off to the side that you could use in a face to face meeting. But, sooner of later, it’s going to come to the time where you’re going to be sitting down face to face with the particular investor. This is where having the valuations handy at your fingertips could be important.

But, what I like to suggest is not just having any sort of standard valuation, but it is to have a range of valuations. The range could be based on a particular factor, such as a multiple of EBITDA. What the range would show is what would the value of the company be based upon various discount rates.

It could help you work backwards in the discussion with the investor. You know what your earnings are projected to be several years out. If you and the investor agree on that number, then you can talk on valuations off of this number.

Through the table you put together, you’d see different valuations based upon different discount rates. That is the interest rate that an investor would have to earn to compensate them for the risk applicable to your particular company. You could use ranges going from, let’s say, 20% to 50%. The other side of the table would be multiples, such as what multiples of EBITDA would be used. Having this all together, you now have a two dimensional grid with discount rates on one side and EBITDA multiples on the other.

Then when the investor says they think your company is only worth such and such amount, you can ask them, "How did you arrive at that? What discount rate did you use? What multiple?" Then you can refer back to the table and use that as a guide.

So be prepared, have a range of option considered and at your fingertips on valuation. So when it comes time to talk with the investors, you can get more clarity on the valuation they’re proposing and then, perhaps, steer it towards a different multiple or different discount rates in order to come back more to the particular valuation you are looking for.