Types of Business Valuation Method Every Entrepreneur Should Know

Regardless of the reason, when it comes to selling your business, you should have a fair idea about your business’s worth to close a profitable deal. Business valuation is the best way to determine your business’s worth including the values of liquid assets, equipment, property, inventory or anything that add value in the economic worth of your business. Other factors that play a major role in business valuation are revenue, projected earnings, management structure and a lot more.

There are multiple types of business valuation methods available, you should use them depending on the situation. You should consider the size of your business, your domain, and other aspects while choosing the method for business valuation. Well, if you are looking for “how much is my business worth to sell?” it would be a smart decision if you hire a team of business brokers to get experts’ assistance in this process. With the years of expertise and knowledge in this field, they can provide you with the most objective and accurate business valuation possible.

The Common Types Of Business Valuation Methods Are:

  • Asset-Based Business Valuation: As the name suggests, this method involves considering the total net asset value of your business, minus the value of total liabilities as per the balance sheet. Basically, this asset-based approach totals up all the investments done in the business. The main ways to perform this method for business valuation on a liquidation basis or a going concern basis.
  • Discount Cash Flow Valuation: If the business profit is not expected to remain stable in the future as per the current condition of your company, then opting for a discount cash flow valuation is the best option. It is also known as the income approach, which values the business as per the projected cash flow and discounts them to the present-day values.
  • Multiplies Method: Multiplies method is also a common method for business valuation used by most business brokers. It is also known as the Times Revenue Method, where the maximum worth of the business is calculated by assigning a multiplier to its present revenue. However, multipliers vary according to the industry domain, economic factors, and many other factors.
  • Relative Valuation: With the relative valuation approach, you can determine how much your competitors would bring if they sell their business while knowing “how do I value my business to sell?” By using this business valuation method, your business broker compares the value of your business assets to your competitor’s value of similar assets and then provides you with a reasonable asking price.
  • Historical Earnings Valuation: The gross income of your business, capitalization of cash flow and capability to repay the debt are certain factors that determine its current worth. If the value of your business drops gradually, then you should focus on repaying the debt quickly while maintaining the stability of positive cash flow. This will be beneficial to improve your business value by using a historical earnings valuation approach.

Thus, whether you own a startup, a small firm or a well-established organization, you should choose the best method for determining your business worth.

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