If you’re an entrepreneur trying to sell your business, or are just interested, it’s crucial to know how to assess the value of a business. There are many different methods to assess businesses and each has its advantages and disadvantages.
The most efficient method to accomplish this is to add the assets of the company and subtract the liabilities. This is true for both tangible assets as well as intangible assets, such as equipment, inventory in addition to cash, investments, and financial backing. The liabilities include creditor claims and outstanding tax payment.
Another way to evaluate a business is by using formulas based on the discounted cash flow method. This is a complex calculation however, there are plenty of online calculators that will aid you in determining the value of your business by analyzing future cash flows, and then discounting them to current values. Western & Southern Financial Group provides, for instance, an online business valuation calculator based on this method.
Market-based valuation is an effective method of determining the value of a company, and involves looking at similar businesses that are for sale in your industry to see the value they’re worth. This method isn’t always accurate, since businesses are usually over- or under-valued. However, it can give an approximate figure. It may also be beneficial to mix this with other methods of valuation to gain a greater understanding of your company’s worth.
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