Simply put, a business valuation or business appraisal is a formal process of determining what a business is worth. The process of valuing a business is often complicated with many nuances and complexities that must be accounted for and factored into the final value of a company. An accredited business valuation professional has the experience, resources and processes to make this process easy for all involved and, more importantly, to determine a fair market value that can be trusted and defended with buyers, lenders, partners and government agencies.
There are multiple approaches and methods to value a business. Each method has advantages and disadvantages and, depending on why a valuation is being conducted and what type of business is being evaluated, may be more or less appropriate for your specific situation. Once again, the expert perspective of an experienced professional will help remove any guesswork and will ensure that your valuation is done using the most appropriate techniques. Business valuation methods include:
Asset-based valuation – value is determined based on total assets minus total liabilities
Market valuation – value is based on comparisons to sales of similar businesses
Discounted Cash Flow valuation – value is based on projected value of future cash flows discounted back to present day value
Income valuation – value based on company’s current profits, future profit potential and the return a potential buyer could expect to make on their investment
There are additional ways to value businesses – using multiples or multipliers, using book-value of assets, etc. but those listed above are the most common. Only a business valuation professional can advise on which method or combination of methods is best for your specific circumstances.