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How to value a business?

Date: Mar 01, 2022

There is no one method that a business valuator will always use to determine a company's valuation.  First, the business should be viable. The company should also be willing to continue as a going concern. Then, considering these a valuator may choose from many common methods and practices they use.

The first choice of valuation could be the capitalized earnings approach. The valuator uses this to estimate the future after-tax income derived from the company's operations. They could also use a discounted cash-flow approach. To do this the valuator will discount the present cash flows. They will discount it as a function of the number of years to arrive at the present value of those cash flows. The company will then receive that amount in the future.

Finally, a valuator may calculate the adjusted book value of the corporation. They will then adjust the net book value of the assets and liabilities of the business to their respective fair market value comparables.

To determine the valuation of a company they may use any of these methods. The valuations can be supported by using a conventional rule of thumb multiple. Also, by comparing the valuation with valuations for similar companies. This is something a business broker can often provide for you.