Excel

Excel Skills
Skills || Business
Business Valuation
Valuation Template
Template

About
About this
this template
template
This
This template
template enables
enables business
business owners
owners and
and buyers
buyers or
or sellers
sellers of
of businesses
businesses to
to compile
compile an
an informal
informal valuation
valuation of
of aa busine
busine
projections
that
are
automatically
compiled
from
the
template
assumptions.
The
net
annual
cash
flows
are
discounted
projections that are automatically compiled from the template assumptions. The net annual cash flows are discounted at
at the
th
capital
(WACC)
in
order
to
calculate
a
net
present
value
(NPV),
internal
rate
of
return
(IRR)
and
an
estimated
business
capital (WACC) in order to calculate a net present value (NPV), internal rate of return (IRR) and an estimated business va
va
of
of the
the template
template also
also enables
enables users
users to
to perform
perform sensitivities
sensitivities on
on the
the projected
projected cash
cash flow
flow and
and financing
financing of
of aa business
business in
in order
order
business
business is
is worth.
worth. All
All valuation
valuation calculations
calculations are
are based
based on
on both
both aa three
three year
year and
and aa five
five year
year period.
period. This
This template
template is
is the
the ide
ide
businesses
businesses but
but can
can also
also be
be used
used to
to calculate
calculate aa business
business valuation
valuation for
for service
service based
based businesses
businesses by
by simply
simply specifying
specifying aa 100
10
in
in the
the template
template assumptions.
assumptions.
About
About our
our unique
unique templates
templates
Our
Our unique,
unique, practical
practical templates
templates produce
produce results
results that
that are
are more
more comparable
comparable to
to software
software solutions
solutions than
than regular
regular Excel
Excel templa
templ
only
only contain
contain limited
limited functionality
functionality but
but our
our templates
templates produce
produce complex
complex automated
automated reports
reports based
based on
on limited
limited user
user input.
input. You
You
Excel
Excel skills
skills in
in order
order to
to use
use our
our templates
templates -- all
all our
our templates
templates only
only require
require basic
basic user
user input
input and
and include
include comprehensive
comprehensive step
step by
b
About
About this
this sample
sample file
file
This
This Excel
Excel document
document is
is only
only aa sample
sample of
of the
the business
business valuation
valuation template.
template. Weve
Weve created
created this
this sample
sample to
to enable
enable custom
custom
features
of
this
template.
You
will
therefore
not
be
able
to
use
this
version
of
the
template
the
full
version
features of this template. You will therefore not be able to use this version of the template - the full version of
of the
the templat
templa
after
after buying
buying the
the template
template or
or aa full
full membership
membership of
of the
the Excel
Excel Skills
Skills website.
website.
Our
Our full
full membership
membership includes:
includes:
Access
Access to
to all
all 40+
40+ of
of our
our unique
unique Excel
Excel templates
templates
365
365 days
days access
access to
to our
our 300+
300+ Excel
Excel video
video tutorials
tutorials
Buy this template
click here

ompile
ompile an
an informal
informal valuation
valuation of
of aa business
business based
based on
on the
the cash
cash flow
flow
t
annual
cash
flows
are
discounted
at
the
weighted
average
et annual cash flows are discounted at the weighted average cost
cost of
of
urn
urn (IRR)
(IRR) and
and an
an estimated
estimated business
business valuation.
valuation. The
The flexible
flexible design
design
ow and
low
and financing
financing of
of aa business
business in
in order
order to
to evaluate
evaluate how
how much
much the
the
five
five year
year period.
period. This
This template
template is
is the
the ideal
ideal solution
solution for
for trade
trade based
based
ed
ed businesses
businesses by
by simply
simply specifying
specifying aa 100%
100% gross
gross profit
profit percentage
percentage

ware
ware solutions
solutions than
than regular
regular Excel
Excel templates.
templates. Most
Most Excel
Excel templates
templates
eports
eports based
based on
on limited
limited user
user input.
input. You
You also
also don't
don't need
need advanced
advanced
input
input and
and include
include comprehensive
comprehensive step
step by
by step
step instructions.
instructions.

ee created
created this
this sample
sample to
to enable
enable customers
customers to
to view
view the
the layout
layout and
and
emplate
the
full
version
of
the
template
can
only
be
downloaded
template - the full version of the template can only be downloaded

s template

k here

Register for a full membership

click here

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

This template enables business owners and buyers or sellers of businesses to compile an informal valuation of a busine
based on the cash flow projections that are automatically compiled from the template assumptions. The net annual ca
flows are discounted at the weighted average cost of capital (WACC) in order to calculate a net present value (NPV), inter
rate of return (IRR) and an estimated business valuation. The flexible design of the template also enables users to perfo
sensitivities on the projected cash flow and financing of a business in order to evaluate how much the business is worth.
valuation calculations are based on both a three year and a five year period.

Note: A formal valuation of a business usually involves a comprehensive analysis of the cash flow that is generated by
business and the inherent risk factors that may affect a business valuation. We therefore believe that it is impossible
compile a formal, independent business valuation by using any stand alone business valuation tool and the results that
produced by this template should therefore not be interpreted as a formal business valuation. This template is howeve
unique business valuation solution that adds immeasurable value in determining and analyzing the estimated value o
business on a discounted cash flow basis.
The following sheets are included in this template:

Assumptions - this sheet contains all the user assumptions that are required in order to compile the business valuat
calculations in this template. Most of the assumptions are used in compiling the five year forecast of annual cash flows,
some important financing assumptions are also included at the bottom of the sheet.

CashFlow - the 5 year annual cash flow forecast on this sheet is automatically compiled from the assumptions that
entered on the Assumptions sheet. The only user input that is required on this sheet is the addition of expense items if the
default expenses are not sufficient.

Valuation - the annual cash flow projections and the financing assumptions that are entered at the bottom of
Assumptions sheet are used in the calculation of the weighted average cost of capital (WACC), net present value (NP
internal rate of return (IRR) and estimated business valuation on this sheet. We have also included a calculation of
annual cash flow after debt repayment in order to provide an indication of the estimated net disposable income that
business can be expected to generate.

Assumptions
Turnover

The turnover amounts that are included in the annual cash flow forecast are calculated from the year 1 amount tha
entered in cell C6 on the Assumptions sheet and increased for subsequent years by applying the appropriate ann
increase percentages that are specified in row 7 on the Assumptions sheet to the appropriate previous year's turno
amount.

Gross Profit %

The estimated gross profit percentages that are entered in row 9 on the Assumptions sheet are used to calculate
appropriate gross profit amounts in each year on the cash flow forecast. The cost of sales amounts are then calculated
deducting the gross profit amounts from the appropriate turnover amounts.

Note: Gross profit percentages of 100% can be entered in row 9 in order to compile a cash flow forecast for service bas
businesses. The turnover amounts will then be the same as the gross profit amounts and you can hide the cost of sales a
gross profit rows on the CashFlow sheet if you don't want to include these calculations on the annual cash flow projections

Expenses

Page 3 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The template includes 23 default expense items that can be customized based on requirements. The default expense it
descriptions can be edited in order to change the appropriate expense items and you can sort the expense item descriptio
on the Assumptions sheet in alphabetical order after customizing the default list. The expense item descriptions and amou
on the cash flow forecast are automatically updated.

You can also add additional expense items to the default list by simply inserting a row anywhere above the "Add n
expense items above this row" text in row 34. The expense items that are added above this row are automatically upda
on the CashFlow sheet but you also need to insert the appropriate number of additional rows on this sheet in order to inclu
all the expenses that are listed on the Assumptions sheet on the cash flow forecast.

Page 4 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The year 1 expense amounts in column C on the Assumptions sheet are automatically included in the appropriate rows
the CashFlow sheet. The year 2 to year 5 expense amounts are calculated by applying the expense increase percentag
that are entered in row 35 to the appropriate expense amounts of the previous year.

Individual expense items are not covered in these instructions because the nature of expenses differs based on the nature
the business that the cash flow forecast is compiled for. We would however like to emphasize that users need to ensure t
all expenses are included in the cash flow forecast because the omission of material expenses could result in an inaccur
business valuation being calculated.

Some expense items do however require special mention for the purpose of this template. If you are calculating a busine
valuation for a start-up business, some costs may be incurred in the first year but not in subsequent years. These start
costs should be included in the list of expense items on the Assumptions sheet but the formulas that are used in order
calculate the expenses for subsequent years on the CashFlow sheet should be deleted and replaced by nil values.

The Salaries & Wages expense for owner managed businesses should also be carefully considered. For business valuat
purposes, it is important that the amounts that are included in expenses are market related given the role that the ow
intends to fulfil in the business. The salary that the owner wishes to earn from the business should not form part of t
expense line item because it will distort the business valuation that is calculated.

Instead, the annual cash flow after debt repayment (estimated annual net disposable income) should be added to
owner's market related salary in order to determine the projected gross earnings (before income tax) that the owner would
able to earn from the business. The annual cash flows after debt repayment are calculated in row 26 to 28 on the Valuat
sheet.

Note: Non-cash expense items like depreciation on property, plant & equipment should not be included in the cash fl
projections quite simply because these items are accounting entries and not related to the cash that is generated by
business.

Working Capital

The working capital of a business consists of inventory, debtors and creditors balances. The movements in these balanc
form part of the operating cash flow of a business and are therefore included in the calculation of our annual cash f
projections. In order to calculate the movements in working capital, users therefore need to enter the estimated start
balances (for existing businesses) and annual closing balances for each of the working capital account groups (invento
debtors and creditors). Note that the estimated closing creditor balances need to be entered as negative values.

When this template is used to calculate an estimated business valuation for an existing business or a business tha
acquired as a going concern, the start-up working capital balances should be easy to determine (based on the busine
accounts or acquisition agreement). If the template is however used to calculate a valuation for a business with no previo
trading history, the start-up balances should be nil and the closing working capital balances for each projection year sho
be estimated.

We recommend applying an estimated "days" factor to the appropriate income statement items in order to calculate
accurate estimate of the appropriate working capital closing balances. For example, the closing inventory balance for ea
year can be calculated by dividing the cost of sales amount of the appropriate year by 365 and multiplying the result by
estimated days of inventory that is kept on hand.

Page 5 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

Similarly, debtors closing balances can be calculated by dividing the turnover amount of the appropriate year by 365 a
multiplying the result by the number of days' sales that is expected to be outstanding at the end of each year. Debtor trad
terms and the ratio of cash and credit sales should also be considered in determining this estimate.

The outstanding creditors balances can also be calculated based on a number of days assumption, but users should keep
mind that this balance is influenced by inventory purchases as well as expense items and the ratio of cash and cre
payments. The trading terms that are negotiated with suppliers can therefore be used in calculating the estimate but
expense line items that are paid in the same period as the expenses were incurred should also be taken into account.

Page 6 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co
Capital Expenditure

All the forecasted acquisitions of property, plant & equipment (fixed assets) that do not form part of the initial busine
acquisition should be entered in row 41 on the Assumptions sheet. It is also important to note that you should only inclu
fixed assets with a useful life of more than one year in capital expenditure. Assets with a useful life of less than a year sho
be included in the Expenses section.

All capital expenditure amounts should be entered as positive values - the amounts are automatically converted to negat
values (cash outflows) on the CashFlow sheet. Note that it is the amounts that are forecasted to be spent in each year t
should be included in the assumptions and not the closing balance of all fixed assets.

As we've mentioned before, depreciation should not be included as an expense item for the purpose of this templ
because it is not a cash expense. We do however recommend that the deterioration of the condition of fixed assets
considered when estimating the capital expenditure amounts, especially in years 4 and 5.

Acquisition Price & Financing

A business acquisition price should be entered in cell B43 on the Assumptions sheet. We recommend that an amoun
entered regardless of whether a valuation is being calculated based on a business acquisition or not. If there isn't a spec
business acquisition price, enter an estimated valuation for the business in this input cell. This value is required in order
calculate the WACC and therefore in order to calculate a business valuation in accordance with the principles of discoun
cash flow.

Note: If you enter a nil amount as the business acquisition price, the WACC will be nil and the annual cash flows that
forecasted will be discounted by 0% in determining the value of the business. This means that the NPV and the estima
business valuation will equal the sum of the appropriate annual cash flows and will not be discounted to take the requi
return on investment into account. The IRR can also not be calculated if an initial capital outflow amount (busine
acquisition price) is not specified and will be reflected as 0%.

If the business acquisition price includes an amount for working capital, this amount should still be included in the amo
that is entered in cell B43 even though the working capital balances are also entered in the working capital section of
assumptions. The full business acquisition price needs to be evaluated in the template calculations and the working cap
start-up balances are only entered in the working capital section of the assumptions in order to calculate the working cap
movements in year 1.

If the valuation is calculated for a business that is being acquired as a going concern and the new business will be registe
for sales tax purposes, the sales tax amount that is included in the business acquisition price should be deducted from
full acquisition price. This amount will be claimed back from the appropriate tax authorities and the business acquisition pr
should therefore be exclusive of sales tax under these circumstances.

The next four input cells relate to the financing of the business and play an important role in the calculation of the WAC
The loan amount (amount of debt financing) should be entered in cell B44 on the Assumptions sheet. This amount is a
used in order to calculate the amount of equity that will be required in order to finance the business acquisition. The equ
contribution is simply the difference between the business acquisition price and the amount that is financed by debt (lo
amount).

Page 7 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

Note: For businesses that are being acquired, the loan amount should be the amount of debt financing that will be used
finance the business acquisition. For start-up businesses, the loan amount should equal the amount of financing that will
available in order to finance the initial business activities. For existing businesses, the loan amount can either be
outstanding amount on existing loan facilities or can be calculated by using the business's existing debt / equity ratio.

Note: The loan amount must be less than or equal to the business acquisition price and the business acquisition price m
therefore obviously be greater than or equal to the loan amount. If you therefore want to edit the values in these input ce
by entering a business acquisition price that is less than the current loan amount input cell value, you have to edit the lo
amount input cell first otherwise the value that you enter will not be accepted.

Page 8 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The cost of debt that is entered in cell B45 should be the annual interest rate associated with the debt facility to which
loan amount in cell B44 relates. This value should therefore be entered as a percentage. The repayment period tha
entered in cell B46 should be the remaining loan repayment period. This input cell is only used in the calculation of the
cash flow after debt repayment on the Valuation sheet and a minimum value of 1 should be entered in this cell in order
calculate the appropriate annual debt repayment amounts.

The required return on equity should be entered in cell B47. The value that is entered in this input cell is a subjective va
that depends on the annual return that the shareholders who contribute the equity funds to the business require from th
investment. The required return should be entered as a percentage before taking the effect of income tax into account
other words, this should be the minimum return that the shareholders expect from the funds that they are investing in
business before income tax is deducted from the amounts that are returned to them.

Note: The income tax applicable to the returns of shareholders could be in the form of income tax on dividends if profits
returned to shareholders through the declaration of dividends or income tax on earnings in the case of an owner manag
business if profits are distributed to the owners as remuneration (salaries & wages).

Note: A benchmark for the required return on equity is between 20% and 30%. The percentage that is specified in this in
cell influences the WACC and therefore has a direct impact on the business valuation that is calculated. As we mention
before, this is a subjective input variable and we therefore recommend that users test the effect that different return on equ
percentages have on the business valuation that is calculated.

Annual Cash Flow

The annual cash flow projections on the CashFlow sheet are automatically compiled from the input values that are ente
on the Assumptions sheet. The calculation of the line items that are included on the cash flow projections is covered un
the Assumptions section of these instructions. The only user input that is required on the CashFlow sheet is the addition
expense items (if additional expenses have been added to the Assumptions sheet).

If additional expense items have been added on the Assumptions sheet, you may notice that not all the expense items
included in the cash flow projections. The additional expenses have to be added to the cash flow projections by inserting
appropriate number of additional rows anywhere between the existing expense rows and copying the formulas in column A
G from one of the existing rows. Note that the descriptions of the expense items below the empty rows will change a
inserting the new rows but all the appropriate descriptions are included after copying the formulas.

The order in which expense items are displayed on the CashFlow sheet is exactly the same as the order in which expen
items are included on the Assumptions sheet. If you therefore delete some of the expenses from the list on the Assumptio
sheet, the row below the last expense item on the CashFlow sheet will contain the "Add new expense items above this ro
text. You therefore need to delete this row and all the other rows below it in the Expenses section so that only valid expen
items are included on the cash flow projections.
Note: We recommend that you review the completeness of expense items on the cash flow projections by ensuring that
last expense item on the Assumptions sheet is included on the CashFlow sheet.

Note: The cash outflow relating to the repayment of loans is not included on the cash flow forecast because it is included
the calculation of the weighted average cost of capital (WACC) which is used as the discount rate in calculating the NPV a
estimated business valuation.

Business Valuation Calculations

Page 9 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The Valuation sheet contains all the business valuation calculations that are included in this template. All the calculations
this sheet are automatically calculated from the input values that are entered on the Assumptions sheet and the cash f
projections on the CashFlow sheet. No user input is required on the Valuation sheet.

Page 10 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

All the business valuation calculations that are included in this template are calculated over both a 3 year and 5 year peri
In practice, some business brokers or advisors may indicate that a three year calculation period is the norm but we belie
that it is a lot more prudent to evaluate an investment over both a 3 year and 5 year period. If the business owner intends
sell the business after 3 years, the 3 year calculation should however carry more weight. If however the business owner h
a longer investment period in mind, the calculations over the 5 year period should be considered the most important.

For example: In some scenarios, the business valuation calculations may indicate that a business does not provide
adequate return over a 3 year period but when the business is evaluated over a 5 year period, the investment significan
exceeds the investment return requirements. If a valuation calculation is only performed over a 3 year period, it m
therefore result in the incorrect investment decision. If however the business owner has no intention of owning the busine
for longer than 3 years, the 5 year calculation is in effect meaningless.

Note: When you calculate a business valuation over a period as long as 5 years, you should be prudent in the assumptio
that are used in compiling annual cash flow projections. This principle is especially important in relation to the cap
expenditure that is included in the cash flow projections - it is important to recognize that the condition of fixed ass
deteriorates over time and that some assets may have to be replaced after a certain period has elapsed. Also, if your ca
flow projections include a significant increase in turnover, you should ensure that you provide for the acquisition of additio
capital assets if the capacity of existing assets is insufficient in order to achieve the projected levels of turnover.
The Valuation sheet includes the following business valuation calculations:

Weighted Average Cost of Capital (WACC)

The WACC is the weighted average cost of the capital that is used to finance the business and is expressed as an ann
percentage. For the purpose of this template, the WACC calculation consists of capital in the form of equity and debt.

The debt amount that is included in the WACC calculation is the same as the loan amount that is entered in cell B44 on
Assumptions sheet. The equity amount that is included in the WACC calculation is calculated by deducting the debt amo
from the business acquisition price that is entered in cell B43 on the Assumptions sheet. In order to calculate the WACC
the business, we need to calculate the percentage of the business acquisition funding that can be attributed to each sou
of financing, apply these percentages to the cost that is associated with each financing component and sum the calcula
result.

The percentage of the acquisition price that is financed by debt and equity is calculated in cells C7 and C8 and the cos
each component is included in cells D7 and D8. Note that the cost of debt and the cost of equity (or required return
equity) are specified in cells B45 and B47 on the Assumptions sheet. The WACC of the business is calculated by multiply
the percentages in cells C7 and C8 by the costs in cells D7 and D8 and adding up the resulting percentages in cells E7 a
E8 in order to display the WACC in cell E9.

The WACC is the minimum annual return on investment that is required in order to cover the cost of the capital that is us
to finance a business. For the purpose of a discounted cash flow calculation, the WACC is used as a discount rate in a N
Present Value (NPV) calculation in order to determine whether the estimated annual return on investment from the busine
provides an adequate return for the providers of debt financing (banks or other financial institutions) and contributors
equity (owners or shareholders).

Page 11 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

Note: The WACC calculation is subjective in nature because even though the cost of debt of a business is usu
determined by the costs (interest) charged by financial institutions, the required return on equity is determined by
shareholders of the business. The shareholders of one business may be satisfied with a return on equity of 20% per year,
the shareholders of another business may only be satisfied with 25% per year.

Page 12 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

Note: The ratio in which debt and equity is contributed to a business could have a material impact on the business valuat
that is calculated. The cost of debt is usually lower than the required return on equity. This is because of the higher leve
risk that is associated with equity investments. If a business acquisition is financed mostly out of debt, the cost of capital
WACC) and therefore also the required investment return would be lower. The WACC is used as the discount rate in
business valuation calculation and a lower discount rate will inevitably result in a higher business valuation. We theref
recommend that you calculate the estimated business valuation based on a number of different debt / equity combinations
order to measure the impact that the debt / equity ratio has on the calculation of the estimated business valuation.

Note: As we've mentioned before, the WACC is used as the discount rate in the business valuation calculation and
subjective nature of the required return on equity component and the subjective assumptions that are used in compiling
annual cash flow projections therefore result in a subjective calculation result. This does not mean that the busine
valuation that is calculated will not be accurate, it only means that the calculation result will only be as accurate as
assumptions that are entered and different required rate of return values will result in different valuation results. We theref
recommend that users test the business valuations that are calculated by entering different levels of return on equity (there
measuring the sensitivity of this calculation variable).

Net Present Value (NPV)

The NPV calculation indicates whether a business provides an adequate return on investment and is calculated
discounting the annual cash flow projections by the WACC. If the NPV calculation results in a positive value, it means t
the business provides a return in excess of the required investment return (the WACC). Conversely, if the NPV valuat
results in a negative value, it means that the projected investment return is less than the required investment return and
the purpose of this template that the business acquisition price may be overstated.

The value that is returned by the NPV calculation is also important because it indicates the value by which the investm
return exceeds or falls short of the required investment return. The NPV calculation can therefore be used effectively
conjunction with the IRR calculation because the one calculation indicates the value of an excess or shortfall in investm
return (NPV) while the other calculation indicates the annual projected investment return in percentage terms (IRR).

The NPV calculation consists of three components, namely the WACC, the annual cash flow projections and the busine
acquisition price (or initial capital outlay). If changes are made to any of these components, the NPV calculation result
change. The WACC is calculated in the cell range from cells A7 to E9 on the Valuation sheet, the annual cash f
projections are compiled on the CashFlow sheet and the business acquisition price (the initial capital outlay) is entered in
B43 on the Assumptions sheet.

Internal Rate of Return (IRR)

The IRR indicates the annual return on investment and is calculated based on the business acquisition price that is ente
in cell B43 on the Assumptions sheet and the annual cash flows that are compiled on the CashFlow sheet. The calculat
result is expressed as a percentage and it is important to note that this percentage represents an annual investment ret
(as opposed to an investment return for the entire 3 or 5 year period).

If the IRR exceeds the WACC that is calculated in cell E9, it means that the projected investment return exceeds the requi
investment return. Conversely, if the IRR is less than the WACC, the projected investment return is less than the requi
investment return. An IRR which exceeds the WACC will also result in a positive NPV value and an IRR which is less th
the WACC will result in a negative NPV value.

Page 13 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

Note: If you don't enter a business acquisition price in cell B43 on the Assumptions sheet, the IRR calculation may resul
an error or in an inaccurate result. An estimated business valuation should therefore be entered in this input cell if
business acquisition price has not been determined.

Note: An IRR calculation can only be performed if the initial capital outflow (the business acquisition price) and the cash fl
projections include both positive and negative values. This requirement usually does not represent a limitation in
calculation methodology because the initial capital outlay is usually a negative cash flow and the annual cash fl
projections are usually positive. If both the initial capital outlay and the annual cash flow projections are negative, an I
cannot be calculated simply because there is no return on investment. A 0% value will therefore be the calculation result.

Page 14 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co
Estimated Business Valuation

The estimated business valuation is also calculated by using the NPV function but the business acquisition price (in
capital outlay) is not included in the calculation. The calculation is therefore based only on the WACC and the annual ca
flow projections. The calculation result therefore indicates what the estimated value of the projected annual cash flows ar
the cash flows are discounted by the required investment return.

The estimated business valuation can therefore also be interpreted as the amount of capital that needs to be contributed
order to produce the projected annual cash flows at the required return on investment (the WACC). If the busine
acquisition price exceeds the estimated business valuation, it means that the required investment return cannot be achiev
and vice versa.

Note: The estimated business valuation is also calculated by discounting the projected annual cash flows by the WACC
discussed under the Net Present Value section of the instructions). As we've mentioned before, the WACC calculation
subjective because it is based on the investment return that the shareholders or business owners require. If the return
equity that is required is overstated, it may therefore result in a lower estimated business valuation being calculated and
business acquisition price may therefore seem overstated. We therefore recommend that users perform sensitivities on
required investment return input variables in order to test the impact of different levels of return on the estimated busine
valuation calculation.

Another way of looking at the estimated business valuation calculation is that it can be calculated by adding or subtract
the NPV calculation result from the business acquisition price (the initial capital outlay). An important point to note about t
calculation methodology is that the assumption is made that the valuation can be calculated based on a constant WACC
effect, this assumption means that the debt / equity ratio that is included in the financing of the business acquisit
(business acquisition price) will remain constant even if the estimated business valuation differs from the business acquisit
price. We have therefore included the equity and debt financing amounts on which the estimated business valuation is bas
in rows 21 and 22.

Note: If the calculated debt and equity amounts in rows 21 and 22 are not attainable, you should amend the busine
acquisition price and the loan amount that is specified on the Assumptions sheet in order to calculate a new WACC and th
measure the impact that this adjustment has on the estimated business valuation that is calculated. In most scenarios,
impact on the estimated business valuation should not be material.

For example: If the maximum loan amount that can be obtained through debt financing is 800,000 and the estima
business valuation is based on a debt amount of 870,000, you should change the business acquisition price in cell B43
the Assumptions sheet to the estimated business valuation that was previously calculated and retain the 800,000 lo
amount in cell B44 on the Assumptions sheet. By amending the business acquisition price and keeping the loan amo
constant, a new WACC will be calculated and the estimated business valuation will therefore also change. The sa
technique can be used to perform a number of sensitivities in order to measure the effect that different WACC calculatio
have on the calculation of the estimated business valuation.

Note: As you can see, this template can be used to perform a number of sensitivities on the calculation o
business valuation in accordance with the discounted cash flow methodology and therefore adds immeasura
value to the process of making a decision on whether a business acquisition price is reasonable or sim
calculating an estimated valuation for an existing business. The template is therefore an extremely useful tool
the parties involved in buying a business, the parties involved in selling a business and business owners t
simply want to determine what their businesses are worth!

Net Cash Flow After Debt Repayment

Page 15 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The net cash flow after debt repayment calculation has been included at the bottom of the Valuation sheet in order to prov
users with an indication of the annual net disposable cash flow that is available after meeting debt repayment obligatio
The net cash flow after debt repayment is calculated by deducting the annual debt repayments from the annual net cash f
projections that are calculated on the CashFlow sheet.

Page 16 of 20

Excel Skills | Business Valuation Template

Instructions

www.excel-skills.co

The annual debt repayment amounts are calculated from the loan amount that is entered in cell B44 on the Assumptio
sheet, the interest rate (cost of debt) that is entered in cell B45 on the Assumptions sheet and the repayment period tha
entered in cell B46 on the Assumptions sheet.

Note: This calculation is especially useful for owner managed businesses where the owner's market related salary has be
included in the Salaries line on the annual cash flow forecast and the owner needs to determine the total earnings that c
be derived from the business based on the net disposable cash flow that will be available. The market related salary c
therefore be added to the net cash flow after debt repayment in order to calculate an estimated total annual earnings amo
before tax.

Help & Customization

If you experience any difficulty while using this template and you are not able to find the appropriate guidance in the
instructions, please e-mail us at support@excel-skills.com for assistance. This template has been designed with flexibility
mind to ensure that it can be used in most business environments. If however you need an Excel based template tha
customized specifically for your business requirements, please e-mail our Support function and provide a brief explanation
your requirements.

Copyright

This template remains the intellectual property of www.excel-skills.com and is protected by international copyright laws. A
publication or distribution of this template outside the scope of the permitted use of the template is expressly prohibited
terms of the permitted use of this template, only the distribution of the template to persons within the same organisation
the registered user or persons outside the organisation who can reasonably be expected to require access to the template
a direct result of the use of the template by the registered user is allowed. Subsequent distribution of the template by part
outside of the organisation is however expressly prohibited and represents an infringement of international copyright laws.

Page 17 of 20

Business Valuation
Assumptions
www.excel-skills.com

Start-up

Year 1

Year 2

Year 3

Year 4

Year 5

10.0%

5.0%

5.0%

5.0%

35.0%

35.0%

38.0%

38.0%

Turnover
Estimated Annual Turnover

3,250,000

Annual Increase %

Gross Profit %
Estimated Gross Profit %

33.0%

Expenses
Accounting Fees

24,000

Advertising & Marketing

60,000

Bank Charges

3,000

Cleaning Expenses

6,000

Computer Expenses

4,000

Consumables

15,000

Electricity & Water

12,000

Entertainment

8,000

Equipment Hire

6,000

Insurance

10,000

Legal Fees

On
Onthis
thissheet:
sheet:

The
The input
input assumptions
assumptions on
on this
this sheet
sheet are
are used
used to
to automatically
automatically compile
compile
the
the five
five year
year cash
cash flow
flow projections
projections on
on the
the CashFlow
CashFlow sheet
sheet and
and the
the
business
business valuation
valuation calculations
calculations on
on the
the Valuation
Valuation sheet.
sheet. The
The turnover,
turnover,
gross
gross profit
profit percentages,
percentages, expenses,
expenses, working
working capital
capital balances
balances and
and
capital
capital expenditure
expenditure amounts
amounts are
are included
included in
in the
the cash
cash flow
flow projections.
projections.
Note
Note that
that you
you can
can add
add additional
additional expense
expense items
items ifif required.
required. The
The input
input
assumptions
assumptions in
in the
the Acquisition
Acquisition Price
Price &
& Financing
Financing section
section are
are used
used to
to
calculate
calculate the
the WACC
WACC which
which is
is used
used as
as the
the discount
discount rate
rate for
for discounted
discounted
cash
cash flow
flow calculation
calculation purposes.
purposes.

4,500

Motor Vehicle Expenses

36,000

Postage

2,000

Printing & Stationery

5,500

Professional Fees

17,000

Rent

120,000

Repairs & Maintenance

11,000

Salaries & Wages

245,000

Security

13,000

Subscriptions

5,800

Telephone & Fax

28,000

Training

18,000

Uniforms

5,000

Add new expense items above this row

Annual Increase %

8.0%

7.0%

10.0%

10.0%

Working Capital
Inventory

150,000

170,000

190,000

200,000

220,000

Debtors

240,000

260,000

300,000

330,000

365,000

245,000
405,000

Creditors

(100,000)

(110,000)

(120,000)

(130,000)

(145,000)

(150,000)

250,000

300,000

Capital Expenditure
Annual Capital Expenses

Acquisition Price & Financing

Business Acquisition Price
Loan Amount
Cost of Debt (annual loan interest rate)
Repayment Period in Years
Required Return on Equity (before taxation)

1,000,000
800,000
9.5%
5
20.0%

Page 18 of 20

Business Valuation
Cash Flow Projection
www.excel-skills.com

Monthly
Average

Year 1

Year 2

Year 3

Year 4

Year 5

Turnover

270,833

3,250,000

3,575,000

3,753,750

3,941,438

4,138,509

Cost of Sales

181,458

2,177,500

2,323,750

2,439,938

2,443,691

2,565,876

Gross Profit

89,375

1,072,500

1,251,250

1,313,813

1,497,746

1,572,634

33.0%

33.0%

35.0%

35.0%

38.0%

38.0%

Accounting Fees

2,000

24,000

25,920

27,734

30,508

33,559

Advertising & Marketing

5,000

60,000

64,800

69,336

76,270

83,897

250

3,000

3,240

3,467

3,813

4,195

Gross Profit %
Expenses

Bank Charges
Cleaning Expenses
Computer Expenses
Consumables
Electricity & Water
Entertainment

On
6,480
6,934
7,627
On this
this sheet:
sheet:
This
five
cash
This333
five year
year annual
annual
cash flow
flow projection
projection
is automatically
automatically
compiled from
from
the
4,000
4,320 is
4,622 compiled
5,085 the

500

6,000

assumptions
that
are
the
sheet.
user
assumptions
that
are entered
entered on
on 16,200
the Assumptions
Assumptions
sheet. The
The only
only
user
1,250
15,000
17,334
19,067
input
input that
that is
is required
required on
on this
this sheet
sheet is
is adding
adding additional
additional rows
rows in
in the
the Expenses
Expenses
1,000
12,000
12,960
13,867
15,254
section
section ifif additional
additional expense
expense items
items have
have been
been added
added to
to the
the Assumptions
Assumptions
667
8,000
8,640
9,245
10,169
sheet.
sheet.

8,390
5,593
20,974
16,779
11,186

Equipment Hire

500

6,000

6,480

6,934

7,627

8,390

Insurance

833

10,000

10,800

11,556

12,712

13,983

Legal Fees

375

4,500

4,860

5,200

5,720

6,292

3,000

36,000

38,880

41,602

45,762

50,338

Postage

167

2,000

2,160

2,311

2,542

2,797

Printing & Stationery

458

5,500

5,940

6,356

6,991

7,691

1,417

17,000

18,360

19,645

21,610

23,771

10,000

120,000

129,600

138,672

152,539

167,793

917

11,000

11,880

12,712

13,983

15,381

20,417

245,000

264,600

283,122

311,434

342,578

1,083

13,000

14,040

15,023

16,525

18,178

483

5,800

6,264

6,702

7,373

8,110

Telephone & Fax

2,333

28,000

30,240

32,357

35,592

39,152

Training

1,500

18,000

19,440

20,801

22,881

25,169

417

5,000

5,400

5,778

6,356

6,991

Total Expenses

54,900

658,800

711,504

761,309

837,440

921,184

Net Profit before Interest & Tax

34,475

413,700

539,746

552,503

660,306

651,449

Changes in Working Capital

(2,500)

(30,000)

(50,000)

(30,000)

(40,000)

(60,000)

Inventory

(1,667)

(20,000)

(20,000)

(10,000)

(20,000)

(25,000)

Debtors

(1,667)

(20,000)

(40,000)

(30,000)

(35,000)

(40,000)

833

10,000

10,000

10,000

15,000

5,000

(250,000)

(300,000)

370,306

291,449

Motor Vehicle Expenses

Professional Fees
Rent
Repairs & Maintenance
Salaries & Wages
Security
Subscriptions

Uniforms

Creditors
Capital Expenditure

Annual Cash Flow

31,975

383,700

489,746

522,503
Page 19 of 20

Business Valuation
Valuation Summary
www.excel-skills.com

Weighted Average Cost of Capital (WACC)

Amount

Cost

Equity

200,000

20.0%

20.0%

Debt

800,000

80.0%

9.5%

1,000,000

100.0%

Acquisition Price

On
On this
this sheet:
sheet:

WACC
4.0%
7.6%
11.6%

This
This sheet
sheet includes
includes all
all the
the business
business valuation
valuation
calculations.
calculations. The
The WACC
WACC calculation
calculation is
is based
based on
on the
the
input
input assumptions
assumptions that
that are
are specified
specified in
in the
the
Acquisition
Acquisition Price
Price &
& Financing
Financing section
section on
on the
the
Assumptions
Assumptions sheet.
sheet.

Cash Flow Calculations

Start-up
Annual Cash Flow Projections

(1,000,000)

Year 1
383,700

Year 2

Year 3

489,746

522,503

Year 4
370,306

Year 5
291,449

Business Valuation Calculations

3 Years
Net Present Value (NPV)
Internal Rate of Return (IRR)

5 Years

112,964

520,054

17.7%

31.6%

1,112,964

1,520,054

Estimated Business Valuation:

Based on WACC of 11.6%
Equity

222,593

304,011

Debt

890,371

1,216,043

The
The net
net present
present value
value (NPV),
(NPV), internal
internal rate
rate of
of return
return (IRR)
(IRR) and
and the
the
estimated
estimated business
business valuation
valuation are
are calculated
calculated for
for both
both aa 33 year
year and
and aa 55
year
year period
period based
based on
on the
the WACC
WACC and
and the
the annual
annual cash
cash flows
flows that
that are
are
compiled
compiled on
on the
the CashFlow
CashFlow sheet.
sheet. The
The net
net cash
cash flow
flow after
after debt
debt
repayment
repayment is
is an
an indication
indication of
of the
the net
net disposable
disposable cash
cash flow.
flow. All
All the
the
calculations
calculations on
on this
this sheet
sheet are
are automated
automated no
no user
user input
input is
is required
required on
on
this
this sheet.
sheet.

Net Cash Flow After Debt Repayment

Year 1
Annual Cash Flow Projections
Annual Debt Repayment
Net Cash Flow After Debt Repayment

Year 2

Year 3

Year 4

Year 5

383,700

489,746

522,503

370,306

291,449

(208,349)

(208,349)

(208,349)

(208,349)

(208,349)

175,351

281,397

314,154

161,957

83,100

Page 20 of 20