How Is Investment Value Calculated in an Unlisted Business, and How Are Ownership and Profit Shares Determined?

This is one of the most important questions in business and investing. Let me explain it using Mama Ngozi’s story so it becomes very clear.

You mentioned someone on Facebook willing to invest in Fokona — so let’s simulate exactly how this works.

Mama Ngozi’s Business Story

Step 1: Mama Ngozi Starts Small

Mama Ngozi starts “Mama Ngozi Foods” — selling:

Rice

Beans

Stew

Drinks

She starts with:

Capital = ₦50,000

Table + stove = ₦30,000

Total investment = ₦80,000

After 6 months:

She now has:

More customers

Better equipment

Daily profit

Someone now says:

“Mama Ngozi, I want to invest in your business.”

Now the big question becomes:

How much is Mama Ngozi’s business worth?

Step 2: How Business Value Is Calculated (Unlisted Business)

There are 3 common methods

Method 1: Asset-Based Valuation (Simple Method for Small Business)

Calculate:

Equipment value = ₦100,000

Cash in business = ₦50,000

Stock (food items) = ₦70,000

Total Business Value:

₦100,000 + ₦50,000 + ₦70,000 = ₦220,000

So Mama Ngozi’s business is worth ₦220,000

Method 2: Profit-Based Valuation (Most Common)

Let’s say:

Mama Ngozi makes ₦20,000 profit weekly

Monthly profit = ₦80,000

Yearly profit = ₦960,000

Small businesses are often valued:

1x – 3x yearly profit

So:

Low value = ₦960,000

Medium value = ₦1.5 million

High value = ₦2.8 million

So business value could be:

₦1 million — ₦2 million

This is how investors usually think.

Step 3: Investor Comes In

Investor says:

“I want to invest ₦500,000”

If business value = ₦1,000,000

Then:

Investor owns:

₦500,000 ÷ ₦1,000,000 = 50% ownership

So:

Mama Ngozi owns = 50%

Investor owns = 50%

Step 4: Profit Sharing

If monthly profit = ₦100,000

Then:

Mama Ngozi gets 50% = ₦50,000

Investor gets 50% = ₦50,000

Step 5: But Wait — Mama Ngozi Is Working

Since Mama Ngozi is the one working daily, she may also take:

Salary + Profit Share Model

Example:

Salary = ₦40,000 monthly

Profit = ₦100,000

Profit sharing after salary:

Remaining profit:

₦100,000 – ₦40,000 = ₦60,000

Split:

Mama Ngozi (50%) = ₦30,000

Investor (50%) = ₦30,000

So Mama Ngozi total income:

Salary = ₦40,000

Profit = ₦30,000

Total = ₦70,000

Step 6: Same Thing Applies to Fokona

If someone invests in Fokona:

You must determine:

1. Business Value

Based on:

Users

Growth

Revenue

Future potential

Brand value

Example:

Fokona value = ₦5 million

Investor puts = ₦1 million

Ownership:

₦1m ÷ ₦5m = 20% ownership

Founder = 80%

Investor = 20%

Step 7: Types of Profit Sharing Models

Model 1: Equity Sharing

Investor gets percentage of profit forever

Example: Investor owns 20% → gets 20% profits

Model 2: Profit Until Capital Returns

Investor invests ₦500,000

Agreement:

Investor gets 30% profits

Until ₦500,000 is returned

After that → investor owns smaller %

This is common in small businesses.

Model 3: Silent Partner

Investor:

Doesn’t work

Just collects profit

Mama Ngozi:

Runs business

Takes salary + profit

Advantages of Taking Investment

✅ Business grows faster

✅ More capital

✅ Reduce personal risk

✅ Business expansion possible

✅ Shared decision making

Disadvantages

⚠️ Lose some control

⚠️ Profit sharing

⚠️ Possible disagreements

⚠️ Pressure from investor

⚠️ Must keep records properly

Smart Rule for Founders (Very Important)

Never give too much equity early.

Example:

Bad:

Give 50% for ₦200,000 ❌

Better:

Give 10% — 20% first ✅

Protect your future.

Real-Life Example (Simple)

Mama Ngozi Today:

Business value = ₦1,000,000

Investor puts = ₦200,000

Ownership:

Investor = 20%

Mama Ngozi = 80%

Profit monthly = ₦100,000

Investor = ₦20,000

Mama Ngozi = ₦80,000

Final Thought

Investment in unlisted businesses is mainly:

Value → Ownership → Profit Share

Simple formula:

Ownership % = Investment ÷ Business Value

That’s the core idea.

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