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Skills || Business
Business Valuation
Valuation Template
Template
About
About this this template
template
This
This template
template enables
enables business
business ownersowners andand buyers
buyers or or sellers
sellers ofof businesses
businesses to to compile
compile anan informal
informal valuation
valuation of of aa busine
busine
projections
projections that are automatically compiled from the template assumptions. The net annual cash flows are discounted at
that are automatically compiled from the template assumptions. The net annual cash flows are discounted at the
th
capital
capital (WACC) in order to calculate a net present value (NPV), internal rate of return (IRR) and an estimated business va
(WACC) in order to calculate a net present value (NPV), internal rate of return (IRR) and an estimated business 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
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used to to calculate
calculate aa business
business valuation
valuation for for service
service based
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businesses by by simply
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specifying aa 10010
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the template
template assumptions.
assumptions.
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business valuation
valuation template.
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ompile
ompile an an informal
informal valuation
valuation of
of aa business
business based
based on
on the
the cash
cash flow
flow
et annual cash flows are discounted at the weighted average cost
t annual cash flows are discounted at the weighted average cost of
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100% gross
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templates. Most
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input and
and include
include comprehensive
comprehensive step
step by
by step
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instructions.

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emplate - the full version of the template can only be downloaded
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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

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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.

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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 f
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.

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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.

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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).

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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.

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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

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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.

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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).

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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.

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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.

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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 f
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 f
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 fl
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 templ
as a direct result of the use of the template by the registered user is allowed. Subsequent distribution of the template
parties outside of the organisation is however expressly prohibited and represents an infringement of international copyri
laws.

Page 17 of 20
Business Valuation
Assumptions
www.excel-skills.com
Start-up Year 1 Year 2 Year 3 Year 4 Year 5
Turnover
Estimated Annual Turnover 3,500,000
Annual Increase % 10.0% 5.0% 5.0% 5.0%
Gross Profit %
Estimated Gross Profit % 33.0% 35.0% 35.0% 38.0% 38.0%
Expenses
Accounting Fees 24,000
Advertising & Marketing 60,000
On
Onthis
thissheet:
sheet:
Bank Charges 3,000 The
The input
input assumptions
assumptions on on this
this sheet
sheet are
are used
used to to automatically
automatically compile
compile
Cleaning Expenses 6,000 the
the five
five year
year cash
cash flow
flow projections
projections on on the
the CashFlow
CashFlow sheet sheet and
and the
the
Computer Expenses 4,000 business
business valuation
valuation calculations
calculations on on the
the Valuation
Valuation sheet.
sheet. The
The turnover,
turnover,
Consumables 15,000 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 inin the
the cash
cash flow
flow projections.
projections.
Electricity & Water 12,000
Note
Note that
that you
you can
can add
add additional
additional expense
expense items
items ifif required.
required. The
The input
input
Entertainment 8,000 assumptions
assumptions in in the
the Acquisition
Acquisition Price
Price & & Financing
Financing section
section areare used
used toto
Equipment Hire 6,000 calculate
calculate the the WACC
WACC which
which is
is used
used asas the
the discount
discount rate rate for
for discounted
discounted
Insurance 10,000 cash
cash flow
flow calculation
calculation purposes.
purposes.
Legal Fees 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 150,000 170,000 190,000 200,000 220,000 245,000
Debtors 240,000 260,000 300,000 330,000 365,000 405,000
Creditors (100,000) (110,000) (120,000) (130,000) (145,000) (150,000)
Capital Expenditure
Annual Capital Expenses - - - 250,000 300,000
Acquisition Price & Financing
Business Acquisition Price 1,000,000
Loan Amount 800,000
Cost of Debt (annual loan interest rate) 10.5%
Repayment Period in Years 5
Required Return on Equity (before taxation) 20.0%

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Business Valuation
Cash Flow Projection
www.excel-skills.com
Monthly
Year 1 Year 2 Year 3 Year 4 Year 5
Average
Turnover 291,667 3,500,000 3,850,000 4,042,500 4,244,625 4,456,856

Cost of Sales 195,417 2,345,000 2,502,500 2,627,625 2,631,668 2,763,251

Gross Profit 96,250 1,155,000 1,347,500 1,414,875 1,612,958 1,693,605

Gross Profit % 33.0% 33.0% 35.0% 35.0% 38.0% 38.0%

Expenses
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
Bank Charges 250 3,000 3,240 3,467 3,813 4,195
Cleaning Expenses 500 6,000 On
On this
this sheet:
6,480 sheet: 6,934 7,627 8,390
Computer Expenses This five
five year
This333 year annual
annual cash
cash flow
4,000 flow projection
4,320 is
projection is automatically
4,622 compiled
automatically compiled from
5,085 the
from the 5,593
assumptions
assumptions that
that are
are entered
entered on the
the Assumptions
on 16,200Assumptions sheet.
sheet. The
The only
only user
user
Consumables 1,250 15,000 17,334 19,067 20,974
input
input that
that is
is required
required on
on this
this sheet
sheet isis adding
adding additional
additional rows
rows inin the
the Expenses
Expenses
Electricity & Water 1,000
section 12,000 12,960 13,867 15,254 16,779
section ifif additional
additional expense
expense items
items have
have been
been added
added toto the
the Assumptions
Assumptions
Entertainment 667 8,000 sheet.
8,640
sheet. 9,245 10,169 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
Motor Vehicle Expenses 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
Professional Fees 1,417 17,000 18,360 19,645 21,610 23,771
Rent 10,000 120,000 129,600 138,672 152,539 167,793
Repairs & Maintenance 917 11,000 11,880 12,712 13,983 15,381
Salaries & Wages 20,417 245,000 264,600 283,122 311,434 342,578
Security 1,083 13,000 14,040 15,023 16,525 18,178
Subscriptions 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
Uniforms 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 41,350 496,200 635,996 653,566 775,517 772,421

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)
Creditors 833 10,000 10,000 10,000 15,000 5,000

Capital Expenditure - - - - (250,000) (300,000)

Annual Cash Flow 38,850 466,200 585,996 623,566 485,517 412,421

Page 19 of 20
Business Valuation
Valuation Summary
www.excel-skills.com
Weighted Average Cost of Capital (WACC)

On
On this
this sheet:
sheet:
Amount % Cost WACC This
This sheet
sheet includes
includes all
all the
the business
business valuation
valuation
Equity 200,000 20.0% 20.0% 4.0% calculations.
calculations. The
The WACC
WACC calculation
calculation isis based
based onon the
the
Debt 800,000 80.0% 10.5% 8.4% input
input assumptions
assumptions thatthat are
are specified
specified in
in the
the
Acquisition Price 1,000,000 100.0% 12.4% Acquisition
Acquisition Price
Price &
& Financing
Financing section
section on
on the
the
Assumptions
Assumptions sheet.
sheet.
Cash Flow Calculations
Start-up Year 1 Year 2 Year 3 Year 4 Year 5
Annual Cash Flow Projections (1,000,000) 466,200 585,996 623,566 485,517 412,421

Business Valuation Calculations

3 Years 5 Years
The
The net
net present
present value
value (NPV),
(NPV), internal
internal rate
rate of
of return
return (IRR)
(IRR) and
and the
the
Net Present Value (NPV) 317,722 851,793
estimated
estimated business
business valuation
valuation areare calculated
calculated for
for both
both aa 33 year
year and
and aa 55
Internal Rate of Return (IRR) 29.3% 43.7% 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
Estimated Business Valuation: compiled
compiled on
on the
the CashFlow
CashFlow sheet.
sheet. The
The net
net cash
cash flow
flow after
after debt
debt
Based on WACC of 12.4% 1,317,722 1,851,793 repayment
repayment isis an
an indication
indication ofof the
the net
net disposable
disposable cash
cash flow.
flow. All
All the
the
Equity 263,544 370,359
calculations
calculations on
on this
this sheet
sheet are
are automated
automated no no user
user input
input isis required
required on on
this
this sheet.
sheet.
Debt 1,054,178 1,481,434

Net Cash Flow After Debt Repayment

Year 1 Year 2 Year 3 Year 4 Year 5
Annual Cash Flow Projections 466,200 585,996 623,566 485,517 412,421
Annual Debt Repayment (213,740) (213,740) (213,740) (213,740) (213,740)
Net Cash Flow After Debt Repayment 252,460 372,256 409,825 271,777 198,681

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