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Project Title: Business Valuation for Sharks

Standard Focus : Patterns, Functions & Algebra Time Range : 5-7 Days

Supplies : Calculator

Topics of Focus :

- Proportions, Ratios & Percents

- Basic Operations

- Analyzing Patterns

Benchmarks : Ratios and

Proportional Relationships

6.RP 3c. Find a percent of a quantity as a rate per 100 (e.g., 30% of a quantity means 30/100 times the quantity); solve problems involving finding the whole, given a part and the percent.

Expressions and Equations

6.EE 6. Use variables to represent numbers and write expressions when solving a real-world or mathematical problem; understand that a variable can represent an unknown number, or, depending on the purpose at hand, any number in a specified set.

Ratios and Proportional Relationships

7.RP 2c. Represent proportional relationships by equations.

Ratios and Proportional Relationships

7.RP 3. Use proportional relationships to solve multistep ratio and percent problems. Examples: simple interest, tax, markups and markdowns, gratuities and commissions, fees, percent increase and decrease, percent error.

Expressions and Equations

7.EE 4. Use variables to represent quantities in a real-world or mathematical problem, and construct simple equations and inequalities to solve problems by reasoning about the quantities.

Procedures:

A) Task 1: Provide students with “Equity Share”. Students will compute proportions to determine equity.

Watching a “Shark Tank” video clip in conjecture with this lesson could help warm students up to the idea.

** Note many of the assignments allows for student estimation or choice so in some cases there will not be one

right answer, but students should be asked to explain or defend their answers.

B) Task 2: Complete “Valuation Station”. Students will be introduced to a basic accounting formula EBIT which

is one method to compute a company’s valuation. Students will be introduced to the concept of a multiplier

and will calculate valuations.

C) Task 3: Complete “Revenue Forecast”. Students will analyze data to look for trends and project future

income. They will combine this skill with the EBIT skill from the previous activity and will analyze multipliers of

related companies to estimate a multiplier for their own.

D) Task 4: Complete “Revenue Forecast”. Students will analyze data to look for trends and project future

income. They will combine this skill with the EBIT skill from the previous activity and will analyze multipliers of

related companies to estimate a multiplier for their own.


E) Task 5: Hand out “Swimming with the Sharks” (pages 15-24). Students will create a small business plan or

invention that you will pitch to a panel of Sharks in hopes that you get an investment (your grade depends on

it!) You will be putting your knowledge of equity, revenue projections and valuation to the test all built around

your own creation.

Once you have an approved on the Think Tank worksheet, your teacher will hand you a copy of your Quarterly

Finances (pages 17-20)

Depending on the quality and creativity of the student’s Think Tank Assignment, they will be given one of these

cards. Cards A-G show moderate revenue. H-K show significant, growing revenue. L-O show low, declining

revenue. Within these groups they go from low expense to high expenses for smaller to larger companies.

There are 15 possibilities overall. Print two or three sets per class.

Students will use these finances to project for the rest of the calendar year, estimate a multiplier based on the

Multiplier Chart and determine what they believe is an accurate valuation of their company. Finally, before they

are ready to pitch they must complete My Finances and determine the equity offering for their business.

Before students enter the tank, they must have a product pitch ready (energy and visuals help!) and they must

know their numbers!

In order to get a deal, they must get at least the dollar amount that they are asking for, but they CAN negotiate

the percentage of equity. So they need to choose carefully.

F) Students will then pitch their projects in front of a panel of Sharks. You can do this as a whole class, but it

would likely work best in small groups of 5 or 6. 1 student will pitch as an Entrepreneur while the others are the

Sharks who have $500,000 to invest. Hand out to students “Shark Notes” which the Sharks will use to

determine their own valuations of the Entrepreneur’s business.

Students will complete the bottom of the My Financials page with a reflection as the entrepreneur and will

complete a reflection on Shark Notes as a Shark. All parts should be collected.


Equity Share In the United States, there are over 23 million small

businesses which comprise over 55% of all jobs. From a pizza

shop to a web-design firm, the greatest challenge of a small-

business is simply surviving. Statistics show that over half of

small businesses will close within the first five years.

One survival strategy is to bring in investors into a company. By getting investors, money is raised

which can help pay expenses and grow the business. What exactly do these investors get? In most

cases, it is equity in the business. Equity is a share of the ownership of a business. Whoever has

over 50% of the shares runs the business.

The percentage of the business that an investor gets depends on how much money they invest and

the value of the business. This value is usually assessed by an independent appraiser or through a

financial calculation. The final percentage will be negotiated between the owner and the investor.

Help these six people make decisions based on the equity, investment or value of their business.

Evelyn Language Learning

eBusiness

Evelyn has been offered $15,000 by a potential investor. The value of her

business has been appraised at $120,000. Evelyn will not take the offer if

she gives up more than 12% of her business. Use the proportion to help her

decide.

𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕

𝒗𝒂𝒍𝒖𝒆=

% 𝒆𝒒𝒖𝒊𝒕𝒚

𝟏𝟎𝟎%

Donnie Printing and Binding

Business

To compete with larger retail stores, Donnie needs to secure an investment

to purchase a larger printer which he believes will increase efficiency. Donnie

needs an investment of $24,000 investment. If his business has been

appraised at $90,000, how much equity would he have to give up?


Trish Express Wrap/

Sandwich Shop

Trish plans to sell off 40% of her fast food restaurant business. If the

business has been appraised for $350,000, how much money does she

expect to raise?

Doyle Landscaping Business

Doyle has been offered $70,000 for 80% of his landscaping business. If he

has his business appraised at $105,000 is this a good deal?

Tripiti Pet Store Owner

Tripiti is looking for a partial owner to take a 25% stake in her pet store

business which is valued at $90,000. She has an offer of $15,000. Would

this be enough or would she need to find another investor?

Shabazz Surfside Food Cart

Business

Shabazz is looking to move closer to his grandchildren and is looking to sell

his successful food cart business. He has two offers from potential partners:

A.) $35,000 for 80% of the business

-or-

B.) $40,000 for 90% of the business

Which offer places a higher valuation on his business?


Valuation Station Suppose someone decides to sell their company. How are they

supposed to determine what it is worth? This isn’t the type of thing

someone could put on eBay. How can you make an accurate valuation?

A valuation is an estimate of the potential market value of a business.

There are many ways to determine a valuation and each has varying levels of complexity. One such

measurement is EBIT. EBIT is an acronym for “Earnings Before Interest & Taxes” and is synonymous

with the term “operating profit”. To calculate EBIT, the annual expenses are subtracted from the

annual revenue of a company. So if a lemonade stand makes $50, but had to spend $5 on lemons and

cups, the EBIT would be $45. Since interests and taxes depend on rates which vary from state-to-

state and bank-to-bank, EBIT is used to compare businesses with a standard measure.

Ahmed HVAC Repair Business

Ahmed does an annual valuation of his business and he must calculate his

EBIT. He has an average of $32,000 in sales revenue every month and an

average of $21,000 in expenses each month. He must compute his annual

revenue and expenses to calculate his EBIT.

Annual Revenue Annual Expenses

EBIT (Revenue – Expenses)

Bianca Collage Art eBusiness

Bianca is considering selling her blossoming art business, but is unsure what

fair value would be. A friend in accounting told her she could help if she can

calculate her EBIT. She has sold 120 art collages for $300. Her expenses are

minimal since she usually uses recycled materials. She estimates it costs her

about $4 per collage and she has created 200 collages this year. Help her

calculate her EBIT.

Annual Revenue Annual Expenses

EBIT


A business’s valuation isn’t the exact same number as its EBIT. Typically, a multiplier is used in a formula

to compute a valuation. A multiplier takes into account values of similar companies and the market.

There are positives that increase a multiplier such as: proprietary products (owning the patent or

trademark), weak competition, diversified products and customers and opportunities for growth.

Negative effects on a multiplier may be things like: unoriginal products or services, strong competition or

weak market for the product, or needing financial support. Typically small businesses will have a valuation

of 2.0 to 6.0x their EBIT value.

Help these 3 individuals determine the valuation of their company.

Aminata Multinational Shipping

& Receiving Company

Aminata’s company Cargo-Pros prides itself on shipping and receiving hazardous

materials for a diverse range of consumers. In her field, she doesn’t have much

competition which led to annual revenues of $4,500,000 and expenses of

$1,400,000.

EBIT

Multiplier

3.5x

Valuation

Tyrone Honey Farm Business

Tyrone runs a family operated honey farm which provides 70% of the honey for

the Midwest. Sweet Honey Boo Boo is a recognizable brand and the bottle is in

the shape of a bear (which he has a patent on). Last year’s revenue was

$1,300,000 and the expenses were $30,000

EBIT

Multiplier

4.2x

Valuation

Jessica Ink Cartridge Refill

Business

Jessica’s business Refill-It refurbishes old ink cartridges for a wide variety of

printers. Due to amount of competition, Jessica is considering selling the

business, but is unsure what it is worth. Last year’s revenue was $75,000 and

the expenses were $48,000

EBIT

Multiplier

1.8x

Valuation


Revenue Forecast If you can predict the future, then you already know what is

going to happen with your money. If you’re like the rest of us

planning, analyzing and creating models is the best we can do.

Financial Analysts work tirelessly to make predictions that are as accurate as possible.

A financial year is typically broken into four quarters: Q1, Q2, Q3 & Q4 -- confusing huh? Analysts

often use data from the previous quarters and previous years (Y1, Y2, etc.) to make predictions about

the future. Sometimes analysts will disagree over predictions and debate the quality of each other’s

models. Having evidence to support your predictions will be necessary or the sharks will throw you to

the wolves.

Help these three individuals estimate their EBIT for the year.

Marcy Piano Lessons

Marcy is hopeful that her EBIT is greater than $30,000 this year, will it be?

Annual

Estimated Annual Expenses $1,500

Q1 Q2 Q3 Q4 Annual

Revenue $6,500 $6,300 $6,100

Estimated EBIT:

Jorge Tailoring Services

Jorge is hopeful that his EBIT is greater than $500,000 this year, will it be?

Annual


Q1 Q2 Q3 Q4 Annual

Revenue $145,000 $155,000 $165,000

Estimated EBIT:

Batulo Elementary Aged

Tutoring Program

Batulo’s goal is to surpass her previous year’s EBIT of $1,500,000. The

summer has been slow, will she reach her goal?

Annual


Q1 Q2 Q3 Q4 Annual

Revenue $525,000 $555,000 $395,000

Estimated EBIT:


Project the revenue for the year to estimate the EBIT of each business and consider valuations from

similar businesses to calculate a valuation. (Remember: EBIT * multiplier = Valuation)

Charlie Bathroom Remodeling

Company

Charlie is seeking investors so he’s trying to estimate the value of his company.

Annual

Estimated Annual Expenses $2,250,000

Previous Y1 Revenue: $3,189,000


Q1 Q2 Q3 Q4 Annual

Revenue ($) 650,000 1,280,000 1,080,000


Valuation of Similar Companies (use to determine a multiplier)

Company A Company B Company C

EBIT: $5,800,000

Valuation:

$15,000,000

Multiplier: _____

EBIT: $630,000

Valuation:

$1,200,000

Multiplier: _____

EBIT: $3,750,000

Valuation:

$9,875,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

Safiyo Authentic West

African Restaurant

Safiyo is moving and will need to sell her business so she needs a valuation.

Annual


Previous Y1 Revenue: $310,000


Q1 Q2 Q3 Q4 Annual

Revenue ($) 74,000 72,000 78,000




EBIT: $150,000

Valuation:

$280,000

Multiplier: _____

EBIT: $520,000

Valuation:

$910,000

Multiplier: _____

EBIT: $850,000

Valuation:

$1,750,000

Multiplier: _____

Multiplier

for

Valuation

Valuation


HD Search Engine

Optimization

Company

HD is considering expanding and would like investment partners.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 65,000 69,000 73,000




EBIT: $90,000

Valuation:

$360,000

Multiplier: _____

EBIT: $560,000

Valuation:

$2,000,000

Multiplier: _____

EBIT: $2,000,000

Valuation:

$6,800,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

Bella Architecture / Design

Firm

Bella plans to start another business and wants to find investors to take over.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 1,200,000 1,450,000 1,150,000




EBIT: $7,000,000

Valuation:

$17,700,000

Multiplier: _____

EBIT: $900,000

Valuation:

$2,500,000

Multiplier: _____

EBIT: $5,100,000

Valuation:

$14,900,000

Multiplier: _____

Multiplier

for

Valuation

Valuation


Into the Tank… For some small business owners and inventors one investment can

be the difference between making it and breaking it. On the show

Shark Tank entrepreneurs go before a panel of wealthy investors (the Sharks) to pitch their product or

idea. The entrepreneurs must enter the tank with an investment amount and a percentage of equity that

they are offering. Some are able to pitch their way toward getting a life-changing investment and other

are… well, eaten alive.

The investors are not there to give handouts and are interested in ideas or products that they believe

they can make money off of. Their successful careers in business have laid a foundation of shrewd

negotiation, a mastery of valuation and equity and a lack of patience for people who go in unprepared with

their financial numbers! They haven’t gotten to their success by being nice to everyone they cross paths

with and if they feel the entrepreneur is wasting their time or that their idea is weak, they will tell them --

right to their face -- sometimes brutally. Oh, the life of a shark.

Consider the offers from the Sharks and decide whether to take the investment.

Aicha Hiker Biker

a bike that folds

into a backpack

Seeking

$100,000 for a

10% equity stake

in the business

Aicha is seeking $100,000 for a 10% equity stake in the business to manufacture

at higher volume and reduce her costs. She does own a patent for the design.

Annual



Q1 Q2 Q3 Q4 Annual

Revenue

($) 19,000 31,000


Multiplier for Valuation

Valuation

Ms. Leopard Mr. Blue Mr. Hammer Your valuation is way off. There’s no

way your business today is worth

$1,000,000, maybe in the future,

but not today. I’m out.

Ms. Leopard is right, your value is

off, but your product is interesting

and you have a patent. I’ll give you

the $100,000 but for 30% of your

company because that is what you’re

worth.

This in an innovative product with a

niche market. I have connections in

the outdoor sporting goods retailers

and I can sell this. I’ll give you

$450,000 for your entire business

and the patent.

Which offer gives her the best valuation? Should Aicha accept any of the offers or are the valuations too

different from hers? Should she counter?


Hideki Wave Farm Underwater

turbines for

hydroelectric

power farms

Seeking $500,000

for a 20% equity

stake in the business

Hideki is seeking $500,000 for a 20% equity stake in the business to build more

farms and increase efficiency. He does own a patent for the design.

Annual


Previous Y1 Revenue: None (In Development)

Q1 Q2 Q3 Q4 Annual

Revenue ($) 1,200,000 1,700,000




EBIT: $8,390,000

Valuation:

$27,700,000

Multiplier: _____

EBIT: $750,000

Valuation:

$2,000,000

Multiplier: _____

EBIT: $2,800,000

Valuation:

$8,100,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

Ms. Leopard

Mr. Blue

Mr. Hammer

This is an innovative and potentially

world changing idea, but at this

point you are not even profitable

yet so I think your valuation is off. I

will offer you the $500,000 for

30% of the company.

Ms. Leopard’s valuation is:

You are showing growth, but this

isn’t my area of expertise and you

are not yet profitable and you’re

too new. If you can convince Mr.

Hammer to come in, I will match

his offer.

What I think you need is more

money. With more money you can

build these farms quicker. My offer

to you is that Mr. Blue and I

together give you $1,000,000 for

45% of the company.

Mr. Hammer & Mr. Blue’s

valuation is:

Which offer gives Hideki the best valuation? Should he accept any of the offers or are the valuations too

different from his? Should he counter?


Kaitlin Jamster Jeans

a pair of jeans with

stylish embroidery

and tears

Seeking $20,000 for

a 25% equity stake in

the business

Kaitlin is seeking $20,000 for a 25% equity stake in the business to get into more

distributors and reduce her costs. She does not own any patents.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 21,000 14,000 19,000




EBIT: $56,000

Valuation:

$75,000

Multiplier: _____

EBIT: $120,000

Valuation:

$195,000

Multiplier: _____

EBIT: $850,000

Valuation:

$1,319,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

Ms. Leopard

Mr. Blue

Mr. Hammer

There’s no market more difficult

than the blue jean market. Three

companies control the entire

thing. I have connections with one

of them and could potentially bring

your product to them. This would

take a great time investment from

me. I will offer you the $20,000,

but for 60% of the company.


The design is neat, but I think your

valuation is high. The jean market

is ultra-competitive and virtually

impossible to break through in.

That said, I know my daughters

would like those jeans. I will offer

you $25,000, but for 50% of the

company.

Mr. Blue’s valuation is:

There is nothing proprietary about

this product. Someone could come

along a rip off your design and

there’s nothing you can do about

it. I’m out.

Which offer gives Kaitlin the best valuation? Should she accept any of the offers or are the valuations too

different from hers? Should she counter?


Cesar Hub Tap

a portable, battery

powered charging

device for iPods

and cellphones

Seeking $250,000 for


the business

Cesar is seeking $250,000 for a 15% equity stake in the business to reach more

markets (domestically and internationally). He does have a patent.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 141,000 153,000 165,000



Company A Company B

EBIT: $32,000

Valuation:

$200,000

Multiplier: _____

EBIT: $115,000

Valuation:

$550,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

Ms. Leopard

Mr. Blue

Mr. Hammer

I love technology products. In

particular ones that have such

great application. Who hasn’t

been out and away from a plug to

recharge? I will give you the

$250,000 for 20%


You are onto an innovative product

that has proven it can do well in

the market. I will give you

$350,000 for 35% of the

company.

Mr. Blue’s valuation is:

This is a tremendous idea which I

want to be involved in. I just think

your valuation is too high. I’ll offer

you $320,000 for 30%

Mr. Hammer’s valuation is:

Which offer gives Cesar the best valuation? Should he accept any of the offers or are the valuations too



Swimming with

the Sharks Many educational experts agree that modern education is not allowing students enough

opportunities for creativity. Thus they end up either bored out of their minds OR completely

dependent on someone telling them what to do every minute of their life OR somewhere in

between. Employers are concerned that this is a missing ingredient in the new generations of

workers. Now is our chance to fix that (at least a little bit).

You must create a small business plan or invention that you will pitch to a panel of Sharks in

hopes that you get an investment (your grade depends on it!) You will be putting your knowledge

of equity, revenue projections and valuation to the test all built around your own creation.

Once you have an approved on the Think Tank worksheet, your teacher will hand you a copy of your

Quarterly Finances. The better your idea, the more likely your teacher will be to give you stronger

finances. You will use these finances to project for the rest of the calendar year, estimate a

multiplier based on the Multiplier Chart and determine what you believe is an accurate valuation of

your company. Finally, before you a ready to pitch complete My Finances and determine the equity

offering for your business.

Before you enter the tank, you must have a product pitch ready (energy and visuals help!) and you

must know your numbers! If you’re caught reading everything from a paper, you will prove to be an

unreliable business partner.

In order to get a deal, you must get at least the dollar amount that you are asking for, but you

CAN negotiate the percentage of equity. So choose carefully.


The Think Tank

Small Business Name / Invention Idea

Problem it solves or Service it provides

What is unique about this idea? Will you have any patents?

Who is the target audience of your product or service?

Space for a Prototype Sketch / Business Plan


Quarterly Finances Depending on the quality and creativity of the student’s Think Tank Assignment, they will be given one of

these cards. Cards A-G show moderate revenue. H-K show significant, growing revenue. L-O show low,

declining revenue. Within these groups they go from low expense to high expenses for smaller to larger

companies. There are 15 possibilities overall. Print two or three sets per class.

A



Q1 Q2 Q3 Q4 Annual

Revenue ($) 12,000 13,500 15,000

Annual

Estimated Annual

Expenses

$25,000

B



Q1 Q2 Q3 Q4 Annual

Revenue ($) 28,000 31,000 29,500

Annual

Estimated Annual

Expenses

$60,000

C



Q1 Q2 Q3 Q4 Annual

Revenue ($) 26,500 28,200 28,800

Annual

Estimated Annual

Expenses

$75,000


D



Q1 Q2 Q3 Q4 Annual

Revenue ($) 38,000 42,500 39,975

Annual

Estimated Annual

Expenses

$120,000

E



Q1 Q2 Q3 Q4 Annual

Revenue ($) 72,750 84,725 91,500

Annual

Estimated Annual

Expenses

$160,000

F



Q1 Q2 Q3 Q4 Annual

Revenue ($) 81,600 84,200 76,500

Annual

Estimated Annual

Expenses

$200,000

G



Q1 Q2 Q3 Q4 Annual

Revenue ($) 95,000 91,405 108,300

Annual

Estimated Annual

Expenses

$250,000


H



Q1 Q2 Q3 Q4 Annual

Revenue ($) 29,500 34,750 41,400

Annual

Estimated Annual

Expenses

$24,000

I



Q1 Q2 Q3 Q4 Annual

Revenue ($) 41,750 45,250 52,500

Annual

Estimated Annual

Expenses

$48,000

J



Q1 Q2 Q3 Q4 Annual

Revenue ($) 67,430 75,425 86,800

Annual

Estimated Annual

Expenses

$106,000

K



Q1 Q2 Q3 Q4 Annual

Revenue ($) 235,700 254,500 271,800

Annual

Estimated Annual

Expenses

$235,000


L



Q1 Q2 Q3 Q4 Annual

Revenue ($) 7,500 6,500 5,800

Annual

Estimated Annual

Expenses

$20,000

M



Q1 Q2 Q3 Q4 Annual

Revenue ($) 9,750 12,400 14,800

Annual

Estimated Annual

Expenses

$45,000

N



Q1 Q2 Q3 Q4 Annual

Revenue ($) 23,500 31,400 22,100

Annual

Estimated Annual

Expenses

$88,000

O



Q1 Q2 Q3 Q4 Annual

Revenue ($) 46,800 45,920 44,120

Annual

Estimated Annual

Expenses

$170,000


Multipliers A multiplier takes into account values of similar companies and

the market.

Estimate Your Multiplier

(Start Here & Add)

How Unique is Your Product or Business?

It has been

around forever

It’s an

improvement of

a product or

business

(no patent)

I would have a

patent and a

small market

I would have a

patent and a

large market

It will change

the world

0 1.0 2.0 3.0 4.0

How Much Competition Do You Have?

Heavy competition Moderate competition, but I

have a unique spin on it. Virtually no competition.

Completely innovative

0 +0.25 +0.5

Will You Have a Wide Range of Products or Services?

A single product or service A couple products of

services are offered. A wide range of products or

services

0 +0.1 +0.25

Are there opportunities to grow the product or business?

It is pretty much a

standalone idea. There are a couple other

ideas that are connected

There is a wide range of

products or services that

make sense with the

business.

0 +0.1 +0.25

My estimated multiplier for my business is: _____________


My Finances Complete the following charts to predict your annual finances, calculate your valuation and determine the

equity offer that you are going to take in front of the Sharks.

Name of Business:_____________________________________________

Previous Y1 Revenue: $

Previous Y2 Revenue: $

Annual

Estimated Annual

Expenses

Q1 Q2 Q3 Q4 Annual

Revenue

($)


Multiplier for

Valuation

Valuation

Equity Offering (How much equity will you offer? How much money is that?)




𝟏𝟎𝟎%

(to be completed after) Did you get a deal? How does it compare to what you asked for? What could

you have done differently to improve?


Shark Notes You will be on a panel for a set of pitch presentations and you will have

$500,000 to invest. Use the space below to take notes and estimate your

own valuations of the business that you see.

Name of Business:_____________________________________________

Revenue / Expense Notes:


Multiplier for

Valuation

Valuation

Equity Offering (How much equity would you offer? How different is it than what is being asked?)




𝟏𝟎𝟎%

Name of Business:_____________________________________________



Multiplier for

Valuation

Valuation





𝟏𝟎𝟎%

Name of Business:_____________________________________________



Multiplier for

Valuation

Valuation





𝟏𝟎𝟎%


Name of Business:_____________________________________________



Multiplier for

Valuation

Valuation





𝟏𝟎𝟎%

Name of Business:_____________________________________________



Multiplier for

Valuation

Valuation





𝟏𝟎𝟎%

Reflection What business(es) did you invest in and why?

What pitches were the strongest?

Were the valuations that you calculated similar to the valuations of the entrepreneurs?


Thank you for being my Math Friend!

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Equity Share In the United States, there are over 23 million small businesses

which comprise over 55% of all jobs. From a pizza shop to a web-

design firm, the greatest challenge of a small-business is simply

surviving. Statistics show that over half of small businesses will

close within the first five years.

One survival strategy is to bring in investors into a company. By getting investors, money is raised which

can help pay expenses and grow the business. What exactly do these investors get? In most cases, it is

equity in the business. Equity is a share of the ownership of a business. Whoever has over 50% of the

shares runs the business.

The percentage of the business that an investor gets depends on how much money they invest and the

value of the business. This value is usually assessed by an independent appraiser or through a financial

calculation. The final percentage will be negotiated between the owner and the investor.

Help these six people make decisions based on the equity, investment or value of their business.

Evelyn Language Learning

eBusiness

Evelyn has been offered $15,000 by a potential investor. The value of her

business has been appraised at $120,000. Evelyn will not take the offer if she

gives up more than 12% of her business. Use the proportion to help her decide.




𝟏𝟎𝟎% It is 12.5%. She

shouldn’t take the offer.

Donnie Printing and Binding

Business

To compete with larger retail stores, Donnie needs to secure an investment to

purchase a larger printer which he believes will increase efficiency. Donnie needs

an investment of $24,000 investment. If his business has been appraised at

$90,000, how much equity would he have to give up?

26.67%


Trish Express Wrap/

Sandwich Shop

Trish plans to sell off 40% of her fast food restaurant business. If the business

has been appraised for $350,000, how much money does she expect to raise?

$140,000

Doyle Landscaping Business

Doyle has been offered $70,000 for 80% of his landscaping business. If he has

his business appraised at $105,000 is this a good deal?

80% of $105,000 would be $84,000. He should negotiate for more money or

a lower equity stake.

Tripiti Pet Store Owner

Tripiti is looking for a partial owner to take a 25% stake in her pet store

business which is valued at $90,000. She has an offer of $15,000. Would this

be enough or would she need to find another investor?

It is 16.67% so she’d need another investor.

Shabazz Surfside Food Cart

Business

Shabazz is looking to move closer to his grandchildren and is looking to sell his

successful food cart business. He has two offers from potential partners:

A.) $35,000 for 80% of the business

-or-

B.) $40,000 for 90% of the business

Which offer places a higher valuation on his business?

A is $43,750 and B is $44,444. So offer B has a higher valuation.


Valuation Station Suppose someone decides to sell their company. How are they

supposed to determine what it is worth? This isn’t the type of thing

someone could put on eBay. How can you make an accurate valuation ?

A valuation is an estimate of the potential market value of a business.

There are many ways to determine a valuation and each has varying

levels of complexity. One such measurement is EBIT. EBIT is an acronym for “Earnings Before Interest &

Taxes” and is synonymous with the term “operating profit”. To calculate EBIT, the annual expenses are

subtracted from the annual revenue of a company. So if a lemonade stand makes $50, but had to spend

$5 on lemons and cups, the EBIT would be $45. Since interests and taxes depend on rates which vary

from state-to-state and bank-to-bank, EBIT is used to compare businesses with a standard measure.

Ahmed HVAC Repair Business

Ahmed does an annual valuation of his business and he must calculate his EBIT. He

has an average of $32,000 in sales revenue every month and an average of

$21,000 in expenses each month. He must compute his annual revenue and

expenses to calculate his EBIT.

Annual Revenue

$384,000

Annual Expenses

$252,000


$132,000

Bianca Collage Art eBusiness

Bianca is considering selling her blossoming art business, but is unsure what fair

value would be. A friend in accounting told her she could help if she can calculate

her EBIT. She has sold 120 art collages for $300. Her expenses are minimal since

she usually uses recycled materials. She estimates it costs her about $4 per

collage and she has created 200 collages this year. Help her calculate her EBIT.

Annual Revenue

$36,000

Annual Expenses

$800

EBIT

$35,200


A business’s valuation isn’t the exact same number as its EBIT. Typically, a multiplier is used in a formula

to compute a valuation. A multiplier takes into account values of similar companies and the market.

There are positives that increase a multiplier such as: proprietary products (owning the patent or

trademark), weak competition, diversified products and customers and opportunities for growth.

Negative effects on a multiplier may be things like: unoriginal products or services, strong competition or

weak market for the product, or needing financial support. Typically small businesses will have a valuation

of 2.0 to 6.0x their EBIT value.

Help these 3 individuals determine the valuation of their company.

Aminata Multinational Shipping

& Receiving Company

Aminata’s company Cargo-Pros prides itself on shipping and receiving hazardous

materials for a diverse range of consumers. In her field, she doesn’t have much

competition which led to annual revenues of $4,500,000 and expenses of

$1,400,000.

EBIT = 3,100,000

Multiplier

3.5x

Valuation

$10,850,000

Tyrone Honey Farm Business

Tyrone runs a family operated honey farm which provides 70% of the honey for

the Midwest. Sweet Honey Boo Boo is a recognizable brand and the bottle is in

the shape of a bear (which he has a patent on). Last year’s revenue was

$1,300,000 and the expenses were $30,000

EBIT = $1,270,000

Multiplier

4.2x

Valuation

5,334,000

Jessica Ink Cartridge Refill

Business

Jessica’s business Refill-It refurbishes old ink cartridges for a wide variety of

printers. Due to amount of competition, Jessica is considering selling the

business, but is unsure what it is worth. Last year’s revenue was $75,000 and

the expenses were $48,000

EBIT: 27,000

Multiplier

1.8x

Valuation

48,600


Revenue Forecast If you can predict the future, then you already know what is

going to happen with your money. If you’re like the rest of us

planning, analyzing and creating models is the best we can do.

Financial Analysts work tirelessly to make predictions that are

as accurate as possible.

A financial year is typically broken into four quarters: Q1, Q2, Q3 & Q4 -- confusing huh? Analysts often

use data from the previous quarters and previous years (Y1, Y2, etc.) to make predictions about the

future. Sometimes analysts will disagree over predictions and debate the quality of each other’s models.

Having evidence to support your predictions will be necessary or the sharks will throw you to the wolves.

Help these three individuals estimate their EBIT for the year.

Marcy Piano Lessons

Marcy is hopeful that her EBIT is greater than $30,000 this year, will it be?

Annual


Q1 Q2 Q3 Q4 Annual

Revenue $6,500 $6,300 $6,100 5900 24,800

Estimated EBIT: 24,800 – 1500 = 23,300

Jorge Tailoring Services

Jorge is hopeful that his EBIT is greater than $500,000 this year, will it be?

Annual


Q1 Q2 Q3 Q4 Annual

Revenue $145,000 $155,000 $165,000

Estimated EBIT:

Batulo Elementary Aged

Tutoring Program

Batulo’s goal is to surpass her previous year’s EBIT of $1,500,000. The summer

has been slow, will she reach her goal?

Annual


Q1 Q2 Q3 Q4 Annual

Revenue $525,000 $555,000 $395,000

Estimated EBIT:


Project the revenue for the year to estimate the EBIT of each business and consider valuations from

similar businesses to calculate a valuation. (Remember: EBIT * multiplier = Valuation)

Charlie Bathroom Remodeling

Company

Charlie is seeking investors so he’s trying to estimate the value of his company.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 650,000 1,280,000 1,080,000 900,000 3,910,000

EBIT (Revenue – Expenses) = 3910000 – 2250000 = 1,660,000



EBIT: $5,800,000

Valuation:

$15,000,000

Multiplier: 2.59

EBIT: $630,000

Valuation:

$1,200,000

Multiplier: 1.90

EBIT: $3,750,000

Valuation:

$9,875,000

Multiplier: 2.63

Multiplier

for

Valuation

~2.3

Valuation

2.3*1,660,000 = ~3,818,000

Safiyo Authentic West

African Restaurant

Safiyo is moving and will need to sell her business so she needs a valuation.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 74,000 72,000 78,000




EBIT: $150,000

Valuation:

$280,000

Multiplier: 1.87

EBIT: $520,000

Valuation:

$910,000

Multiplier: 1.75

EBIT: $850,000

Valuation:

$1,750,000

Multiplier: 2.06

Multiplier

for

Valuation

Valuation


HD Search Engine

Optimization

Company

HD is considering expanding and would like investment partners.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 65,000 69,000 73,000




EBIT: $90,000

Valuation:

$360,000

Multiplier: 4

EBIT: $560,000

Valuation:

$2,000,000

Multiplier: 3.57

EBIT: $2,000,000

Valuation:

$6,800,000

Multiplier: 3.4

Multiplier

for

Valuation

Valuation

Bella Architecture / Design

Firm

Bella plans to start another business and wants to find investors to take over.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 1,200,000 1,450,000 1,150,000




EBIT: $7,000,000

Valuation:

$17,700,000

Multiplier: 2.53

EBIT: $900,000

Valuation:

$2,500,000

Multiplier: 2.78

EBIT: $5,100,000

Valuation:

$14,900,000

Multiplier: 2.92

Multiplier

for

Valuation

Valuation


Into the Tank… For some small business owners and inventors one investment can be

the difference between making it and breaking it. On the show Shark

Tank entrepreneurs go before a panel of wealthy investors (the Sharks)

to pitch their product or idea. The entrepreneurs must enter the tank

with an investment amount and a percentage of equity that they are offering. Some are able to pitch their

way toward getting a life-changing investment and other are… well, eaten alive.

The investors are not there to give handouts and are interested in ideas or products that they believe they

can make money off of. Their successful careers in business have laid a foundation of shrewd negotiation, a

mastery of valuation and equity and a lack of patience for people who go in unprepared with their financial

numbers! They haven’t gotten to their success by being nice to everyone they cross paths with and if they

feel the entrepreneur is wasting their time or that their idea is weak, they will tell them -- right to their face -

- sometimes brutally. Oh, the life of a shark.

Consider the offers from the Sharks and decide whether to take the investment.

Aicha Hiker Biker

a bike that folds

into a backpack

Aicha is seeking $100,000 for a 10% equity stake in the business to manufacture at

higher volume and reduce her costs. She does own a patent for the design.

Annual



Q1 Q2 Q3 Q4 Annual

Revenue ($) 19,000 31,000


Multiplier for Valuation

Valuation

1 million

Ms. Leopard Mr. Blue Mr. Hammer Your valuation is way off. There’s

no way your business today is

worth $1,000,000, maybe in the

future, but not today. I’m out.

Ms. Leopard is right, your value is

off, but your product is interesting

and you have a patent. I’ll give you

the $100,000 but for 30% of your

company because that is what

you’re worth. 333,333 value

This in an innovative product with

a niche market. I have connections

in the outdoor sporting goods

retailers and I can sell this. I’ll give

you $450,000 for your entire

business and the patent.

Which offer gives her the best valuation? Should Aicha accept any of the offers or are the valuations too

different from her’s? Should she counter? If these are the offers and she believes it is worth 1 million, she

should not accept. However little suggests it is worth 1 million at this point.


Hideki Wave Farm Underwater

turbines for

hydroelectric

power farms

Seeking $500,000

for a 20% equity

stake in the business

Hideki is seeking $500,000 for a 20% equity stake in the business to build more

farms and increase efficiency. He does own a patent for the design.

Annual


Previous Y1 Revenue: None (In Development)

Q1 Q2 Q3 Q4 Annual

Revenue ($) 1,200,000 1,700,000




EBIT: $8,390,000

Valuation:

$27,700,000

Multiplier: _____

EBIT: $750,000

Valuation:

$2,000,000

Multiplier: _____

EBIT: $2,800,000

Valuation:

$8,100,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

2.5 million

Ms. Leopard

Mr. Blue

Mr. Hammer

This is an innovative and potentially

world changing idea, but at this

point you are not even profitable

yet so I think your valuation is off. I

will offer you the $500,000 for

30% of the company.


1,666,666

You are showing growth, but this

isn’t my area of expertise and you

are not yet profitable and you’re

too new. If you can convince Mr.

Hammer to come in, I will match

his offer.

What I think you need is more

money. With more money you can

build these farms quicker. My offer

to you is that Mr. Blue and I

together give you $1,000,000 for

45% of the company.

Mr. Hammer & Mr. Blue’s

valuation is: 2,222,222

Which offer gives Hideki the best valuation? Should he accept any of the offers or are the valuations too


Mr. Blue & Mr. Hammer have the highest valuation. It is 300,000 less than his valuation, however his valuation

could be seen as a little high in the first place. Perhaps he could ask them for less equity or he could accept it

as is.


Kaitlin Jamster Jeans

a pair of jeans with

stylish embroidery

and tears

Seeking $20,000 for


the business

Kaitlin is seeking $20,000 for a 25% equity stake in the business to get into more

distributors and reduce her costs. She does not own any patents.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 21,000 14,000 19,000




EBIT: $56,000

Valuation:

$75,000

Multiplier: _____

EBIT: $120,000

Valuation:

$195,000

Multiplier: _____

EBIT: $850,000

Valuation:

$1,319,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

$80,000

Ms. Leopard

Mr. Blue

Mr. Hammer

There’s no market more difficult

than the blue jean market. Three

companies control the entire

thing. I have connections with one

of them and could potentially bring

your product to them. This would

take a great time investment from

me. I will offer you the $20,000,

but for 60% of the company.


33,333

The design is neat, but I think your

valuation is high. The jean market

is ultra-competitive and virtually

impossible to break through in.

That said, I know my daughters

would like those jeans. I will offer

you $25,000, but for 50% of the

company.

Mr. Blue’s valuation is: 50,000

There is nothing proprietary about

this product. Someone could come

along a rip off your design and

there’s nothing you can do about

it. I’m out.

Which offer gives Kaitlin the best valuation? Should she accept any of the offers or are the valuations too

different from her’s? Should she counter? Mr. Blue gives the highest valuation. She could ask for more money

or less equity.


Cesar Hub Tap

a portable, battery

powered charging

device for iPods

and cellphones

Seeking $250,000 for


the business

Cesar is seeking $250,000 for a 15% equity stake in the business to reach more

markets (domestically and internationally). He does have a patent.

Annual




Q1 Q2 Q3 Q4 Annual

Revenue ($) 141,000 153,000 165,000



Company A Company B

EBIT: $32,000

Valuation:

$200,000

Multiplier: _____

EBIT: $115,000

Valuation:

$550,000

Multiplier: _____

Multiplier

for

Valuation

Valuation

1.67 million

Ms. Leopard

Mr. Blue

Mr. Hammer

I love technology products. In

particular ones that have such

great application. Who hasn’t

been out and away from a plug to

recharge? I will give you the

$250,000 for 20%

Ms. Leopard’s valuation is: 1.25

million

You are onto an innovative product

that has proven it can do well in

the market. I will give you

$350,000 for 35% of the

company.

Mr. Blue’s valuation is: 1 million

This is a tremendous idea which I

want to be involved in. I just think

your valuation is too high. I’ll offer

you $320,000 for 30%

Mr. Hammer’s valuation is: 1.06

million

Which offer gives Cesar the best valuation? Should he accept any of the offers or are the valuations too


Given the interest and the difference in the valuation, Cesar can hold tight to his value. His revenue is

increasing and the multipliers on the similar business are high – much higher than what he has applied to his

valuation.

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