If you saw episode seven of the last series of Dragons’ Den, you will have seen the brilliant entrepreneur Dan Hubert leave the den with nothing, despite impression all five Dragons.

What was the problem? He and the Dragons disagreed on the valuation for his car parking app business. Although Peter Jones and Nick Jenkins made an offer, it was too far away from what Hubert was asking for, and he turned it down.

To avoid similar conflicts when you are looking for investment, or if you simply want a good handle on how best to manage your business, you should have a clear idea of how much your business is worth now, and how much it will be worth in the future. In order to arrive at the correct valuation, there are a number of factors you should consider.

Profits and growth

Knowing your company’s profits and accurately forecasting your growth are essential elements in arriving at the right valuation for many companies.

At a basic level, your business’s gross profit is the cost of the goods you sold subtracted from your sales revenue, but a more informative figure is your net profit. This figure takes into account all of your expenditure, including tax.

However, most investors will not be satisfied with knowing where you are now. They want to know that their money is in good hands for the future, so they will expect you to have a good prediction of your growth for the next few years.

If your business has been running for a few years already, you’ll have historic finances to base your forecasts on, but if not, it is hard to get a really accurate figure. The best thing to do is work out your expenses first (remembering to allow room for overspending), as these are often more predictable.

From there, make both a conservative and an optimistic forecast of sales growth. This will encourage you to consider both extremes, as people tend to lean more one way than the other.

Strong profits, now and in future will attract investors

Don’t ignore your assets

For some businesses, working out the value of your assets might be a more accurate way of arriving at a valuation. Businesses that should take a look at their assets are those that own lots of things that are worth money.

For example, a big hardware store might have a big property, some equipment, and a lot of high-value stock. All of these assets translate into a substantial sum of money for the business.

Other assets to be aware of would be any vehicles that your company owns, and any web domains that you own, particularly if the domain is sought after.

Once you have calculated the value of the assets at the current market rate, you simply need to deduct any liabilities that the business has, and then you will have a good idea of the final valuation.

Your progress has value

Don’t underestimate (or overestimate) the value of everything that you have done to develop your business thus far. All of the work that your company has done in establishing a customer base and carving out a space in the market is worth something to anyone who is coming in as an investor or even as a buyer.

For example, the app market is notoriously difficult to break into. An investor coming into a budding online app based business will be able to reap the rewards of the customer base that has already been established, even though they weren’t there for the building process.

This convenience is worth money. Be realistic regarding how much work you have done already, but remember to make sure the investors know how much you have achieved.

Facebook had a huge valuation before it made money - because progress was lightning quick

Other considerations

There are several other elements that you should consider in your valuation of the business, even if they are not the guiding factors in arriving at the correct figure. Two of the most important additional factors are your historical finances and any patents or protected products that the company has.

Historical finances are important in terms of showing an investor your growth and why you expect to grow in the future, and patents are essential to demonstrate that a competitor isn’t going to come in and do what you’re doing.

Other factors to bear in mind could be current marketing activity, such as the search rankings of your site’s important pages, and even your reputation in the marketplace. If you’re getting consistently great reviews then your business is going to be more attractive to potential investors.

The key to arriving at the right valuation is considering all the factors. Be realistic in your assessment - don’t make promises you can’t keep, but don’t undersell yourself either. Be as honest and detailed as you can be, and you will find your conversations with investors going much more smoothly.