Imagine someone offers you ₦10 million for 40% of your business.
Would you accept?
If the offer sounds attractive, that means the investor believes the entire business is worth ₦25 million. After all:
₦10 million ÷ 40% = ₦25 million
But is your business really worth ₦25 million? Is it worth more? Or would you be accepting a generous offer for a business that is actually worth less?
Before answering, you need to understand what you have built.
Many entrepreneurs have never tried to calculate the value of their businesses. Some use annual sales. Others add up everything they have invested since the business started. A few simply choose a figure that feels appropriate.
“I have spent more than ₦15 million on this business, so it must be worth at least ₦15 million.”
Unfortunately, valuation does not work that way.
Your business may be worth more than the money in its account, but it is not automatically worth every naira you have spent on it. Its value comes from what it owns, what it owes, what it can earn and how confidently those earnings can continue.
Why Should You Know Your Business Value?
You do not need to be selling your business before valuation becomes useful.
You may need an estimate when bringing in an investor, admitting a new partner, applying for certain facilities, buying out a co-founder or transferring the business to the next generation.
It can also help you measure progress.
A business may increase its sales every year without becoming more valuable. If its debt is growing, margins are shrinking or everything depends on the founder, a potential buyer may still see a risky business.
Valuation forces you to look beyond activity and ask what the business has actually built.
Start With What the Business Owns
The simplest starting point is the net asset method:
Business assets – Business liabilities = Net asset value
List everything the business owns that has a measurable value. This may include equipment, vehicles, furniture, computers, stock, cash, property and money customers are reasonably expected to pay.
Suppose a small production business has:
Equipment: ₦8 million
Stock: ₦4 million
Cash and collectible customer debts: ₦2 million
Its total assets are ₦14 million.
Now list everything the business owes, including bank loans, supplier debts, unpaid taxes and other financial obligations.
If those liabilities total ₦5 million, the net asset value is:
₦14 million – ₦5 million = ₦9 million
Use current realistic values, not necessarily what you originally paid. A machine bought for ₦5 million may now be worth only ₦3 million. Old stock that customers no longer want may be worth far less than its purchase price.
Do not include personal assets simply because you sometimes use them for business. Your personal car is not automatically a company asset.
This method is useful for manufacturers, retailers and businesses with significant equipment, property or stock. However, it may undervalue a profitable consulting firm, agency or software business whose real strength is not physical assets but customers, expertise, contracts and future earnings.
Look at What the Business Can Earn
A buyer is not only buying your equipment, furniture or stock. They are buying the income the business may produce after the purchase.
This is where maintainable profit becomes important.
Maintainable profit is the annual profit the business can reasonably continue earning after normal expenses have been deducted.
Suppose your records show:
Annual revenue: ₦36 million
Annual operating expenses: ₦30 million
Maintainable annual profit: ₦6 million
Before accepting the ₦6 million figure, check whether the expenses tell the full story.
Perhaps the business paid for a one-off office renovation that will not happen every year. That expense may need to be adjusted. On the other hand, perhaps the owner works full-time without paying themselves a proper salary. A realistic salary should be included because a buyer may need to employ someone to perform that role.
Personal expenses paid through the business should also be removed. These adjustments help reveal what the company genuinely earns from normal operations.
A valuer may then apply an earnings multiple based on the industry, growth, risk and quality of the business. If an illustrative multiple of 2.5 were appropriate:
₦6 million × 2.5 = ₦15 million
The 2.5 is only an example, not a universal rule.
A stable business with recurring customers, reliable records, growing profit and capable staff may justify a stronger multiple. A business that depends entirely on its owner, one customer or one social-media account may attract a lower one.
The multiple reflects confidence. The more predictable and transferable the earnings are, the more valuable they may be.
Do Not Ignore What Cannot Be Touched
Some valuable parts of a business will not appear on an equipment list.
A recognised brand, registered trademark, loyal customer base, useful database, exclusive distribution agreement, strong website, documented process or long-term contract may add meaningful value.
However, these assets must be genuine and useful.
Having 100,000 social-media followers does not automatically add millions of naira to a valuation. A buyer will want to know whether those followers produce enquiries, customers and profit.
In the same way, a customer list is more valuable when it contains active repeat buyers than when it is simply a collection of old phone numbers.
Check What Similar Businesses Are Worth
The market method compares your business with similar businesses that have recently been sold or attracted investment.
For example, if comparable profitable businesses in your industry have sold for approximately two to three times their annual maintainable profit, that information may help you test your estimate.
However, reliable information about private Nigerian business sales can be difficult to obtain. The businesses may also differ in location, debt, profitability, reputation and customer concentration.
Market comparisons should support your calculation, not replace careful analysis.
What Can Increase or Reduce Your Value?
Clear financial records, repeat customers, recurring contracts, strong margins, registered intellectual property and documented processes can strengthen value.
A business that can operate without the founder is also more attractive. If every customer calls your personal number, every payment requires your approval and all important information is in your head, a buyer is taking a serious risk.
Unrecorded sales, mixed personal and business expenses, tax problems, heavy debt, expired licences, unreliable staff and dependence on one customer will weaken the valuation.
This is why two businesses making the same annual sales can be worth very different amounts.
Try This Simple Valuation Exercise
Set aside one hour and gather the following:
- A list of business assets at their current realistic values.
- A list of every business debt and financial obligation.
- Revenue and expenses for the last three years.
- A calculation of normal annual profit after adjustments.
- Evidence of repeat customers, contracts, trademarks and documented systems.
- Any information available about similar businesses or recent transactions.
Calculate the net asset value first. Then estimate maintainable profit and test a reasonable range of multiples.
You may discover that the assets suggest ₦9 million while the earnings approach suggests ₦15 million. After considering the risks, customer relationships and market evidence, a sensible starting range might be ₦12 million to ₦15 million.
Do not force the methods to produce one perfect figure. Business valuation is usually a reasoned range, not a magical number.
The purpose also matters. A valuation for an investor may differ from one prepared for a complete sale, partnership exit, divorce, tax matter or internal planning.
For a basic management estimate, this exercise gives you a useful starting point. For an actual investment, sale or dispute, engage a qualified valuation professional.
Your sales show how busy the business is.
Your valuation asks the more important question: What has all that work actually built?
