Among entrepreneurs there are two common ways to show off: how many employees you have and how much revenue you have. Of course, neither way perfectly accounts for the success of the business. That’s right, a business with $10 million in revenue can be more valuable that a business with $100 million in revenue. Here are some factors that determine company value:
- Gross margins (the higher the better)
- Net margins (the higher the better)
- Equitability of revenue distributed across customers (e.g. a small number of customers representing a large percent of revenue is less valuable)
- Percent of revenue that is recurring (the higher the better)
- Length of contracts (the longer the better)
- Growth rate (the higher the better)
- Barriers to market entry (the higher the better)
So, a high growth and ultra profitable recurring revenue $10 million company can be worth more than a no profit, declining $100 million revenue company.
What else? What are some other factors in company value?