One of the most important actions that business owners can take is to get an idea of the worth of their business. There are a variety of different valuation models that can be used to help determine the worth of your business but a majority of these methods require different amounts of information, based on the type of information you have at your disposal.
The market-based method is, for instance, the comparison of similar companies to get an idea of their value and then using this value to determine the value of your business. This is a straightforward but effective method. However it can be difficult when there aren’t many comparable businesses.
Another approach is to employ a multiples valuation model that calculates your company’s worth by comparing it to similar companies in the industry that have been acquired or sold recently. This is a useful benchmark, but it can quickly become obsolete as market conditions change.
The asset-based valuation method is a bottom up analysis which examines your business’s physical assets like equipment, inventory, patents, goodwill, and property to determine its value. This is a great method to determine the value of your assets that you can employ if your company has a large amount of assets, but not a profit.