A business valuation is a way to determine the economic value of a company, which could be useful in several situations.
Business is like a living organism and determining the value of a business or a component of it surpasses the task of attaching a number to it and requires consideration of all the influencing variables. We can be handy to both buyer and seller side in the context of a business transaction, by valuing a potential target for buyers as well as valuing the intending seller’s business for prospective buyers. We can also address the specific needs of other stakeholders such as investors, lenders, authorities etc. through valuations of tangible assets, intangible assets, intellectual properties, and liabilities; valuation for tax purpose; determination of fair value and appraisal of investment proposals.
Three Business Valuation Methods
When determining the value of a company, there are three ways to evaluate worth:
- Asset-based approaches
- Earning value approaches
- Market value approaches
Each approach has its considerations, and if you own a sole proprietorship there are further factors to consider.