Business Valuation Methods

Parents normally find it difficult to accept the faults in their children. For them, their children are the best and the perfect humans in the world and they cannot put a value on their talent or work. A business owner is also like a parent. He puts in his sweat, blood and all the time to make it prosper so for him it is an invaluable asset whether it succeeds or not. So when it is time to make an assessment and determine a tangible value of the business, it is better to go to an expert. Experts are well-versed in the methods of evaluation and they can judge the company impartially and their results are trusted and accepted by others.

There are certain approaches that are approved and accepted across the business world.

The approach based on Assets.

All these approaches have many advantages and some drawbacks. Most of the times the approach is chosen depending on the size of the enterprise. For example, in a big corporate it is easy to distinguish between the personal and company assets as these are very different and strictly kept separated. But in a very small company most of the times personal assets are also used for official purposes and may be difficult to differentiate.

Approaches based on the value of the earnings

The approaches based upon the value of earnings are based on future predictions and may also involve a certain amount of risk, as no one can guarantee an earning or a certain amount of sales in the future. Past earnings may also depend upon the brand name and ownership and if a new owner is going to take up or buy out then the value of earnings may change.

An approach based on the Market Value

In the last approach, a business is compared to other businesses in the same niche and size. But there must be a sufficient number of similar businesses to compare with and the non-competition clause may also affect this valuation.

Once we understand the various approaches, it becomes easier to apply one or more of the methods to the business. However, a professional evaluator is essential to get the best assessment, that is acceptable and conforms to all legal aspects. He can choose to use one or more methods in combination, to assess the value of the business. The correct and appropriate appraisal will make your business more trustworthy in the eyes of lenders or buyers and that will, in turn, help you to get the right price for it.