If you're running a small business, you've probably wondered how much it's worth. Small Business valuation methods are not as simple as valuing one product or service.
Financials can be misleading and there are many factors that contribute to the value of your company. Nevertheless, there are some tried-and-true methods for estimating the value of your small business:
Asset-Based Valuation
Asset-based valuation is the process of determining the value of a business by analyzing its assets. It’s important to note that it’s not just about the money; assets include tangible assets like inventory and equipment, and intangible assets like intellectual property, and equity.
For example: if you have an online store that sells products from other companies, then your inventory is an asset. If you have a brick-and-mortar store, then your real estate could be considered an asset as well because it could be sold at any time in order to fund growth or expansion efforts.
Market-Based Valuation
In this method, a business's value is determined by the amount that a buyer would be willing to pay for it. The market value of a business is calculated by taking into account the various factors affecting it and their influence on its value.
The market-based valuation method is more objective than other methods in that it does not rely on subjective opinions or judgments about what makes up good or bad businesses. Instead, it relies on observable data about how buyers and sellers behave in open markets—which means that you can use this method to determine your business's worth regardless of whether you're selling yourself.
This method is based on the principle that a business's value is determined by the amount that a buyer would be willing to pay for it. The market value of a business is calculated by taking into account the various factors affecting it and their influence on its value.
Income-Based Valuation
In an income-based valuation, the value of your business is estimated based on your future earnings potential. It assumes that you will be able to continue growing the business and taking advantage of opportunities for growth that present themselves.
This method also assumes that you will be able to find new customers and market share. In addition, it assumes the company will be profitable in the future (as opposed to breaking even or losing money).
Comparable Sales-Based Valuation
When you’re trying to determine the value of your business, one of the most important things you can do is find comparable businesses that have sold in recent history.
These are companies that are like yours in terms of structure, size, and industry. You'll want to use these similar companies as a baseline for how much your company may be worth. This is known as a "comparable sales-based" valuation method because it's based on actual sales transactions (i.e., comparables).
Conclusion
At the end of the day, there is no right or wrong answer as to what your business is worth. Ultimately, it comes down to your personal circumstances and how much you’re willing to sell your business for.
However, it’s important that you know what a Small Business Valuation means before committing yourself to one type over another. It can be a costly mistake if you don’t understand what type suits you best!
