For a couple of reasons that you as an entrepreneur may not want to disclose, you will eventually need a business valuation report. It’s the end point of any business undertaking. But for whatever purpose you need it, all you have to do is make sure you got it right.
There are a couple of methods to do business valuation. Here are three of the most common ones you’ll encounter.
- Asset-based approaches
As the name implies, these methods look at sum total of all the investments in the business. They can either be done on going a certain concern or on liquidation. The difference between the two is that the first one lists the net balance sheet value of the business’ assets and from there, deducts the value of the liabilities. The second one, on the other hand, establishes the net cash that would be collected after all the company’s assets were sold and all the liabilities were paid.
- Earning Value Approaches
Also known as the Income Approach, this approach relies on the concept that the true value of a business is reflected in its ability to produce income in the future.
- Market Value Approaches
With this kind of approach, a business’ value is determined by comparison. The business is compared to other businesses that exist in the same niche and field. The con to this kind of approach is that there should be quite a number of similar businesses for the comparison to take place.
At this point, you might ask: what approach is the best choice?
The most used business valuation approach is the Earning Value/Income Approach, but it still depends on your business valuation specialist and the status of your business. In most cases, a combination of the different business valuation methods is the best way to decide on a selling price.
So what should you do?
Well. The first thing any businessperson must do is to hire a business valuation specialist or a business valuation firm who can assess your business’ value and assist you on what’s the best method to use in the diagnosis of your company’s true worth.
Let us help you find your true worth. With Aviso Valuation and Advisory, your business will be in good hands. Call us and let’s talk value the way it should be talked about.
