There are several ways to value your business. Below are some of the basic methods in placing a value on your business.
- Asset Valuations: Calculate the value of all the assets of a business and arrive at the appropriate price.
- Liquidation Value: Determine the value of the businesses' assets if it were forced to sell all of them in a short period of time (12 month or less).
- Income Capitalization: Future income is calculated based upon historical data and a variety of assumptions.
- Income Multiple: The net income (profit/owner's benefit) of a business by a certain multiple to arrive at a selling price.
- Rules of Thumb: The selling price of other "like" businesses is used as a multiple of cash flow or percentage of revenue.
Each of these methods has advantages and disadvantages. There may be multiple methods in valuing your business. The bottom line is determining which method best reflects the true value of the business.
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