Four Main Methods for Business Valuations:
Capital Market Method – This method utilizes the premise that the value of the business should be determined based on what astute and rational capital market investors pay to own the stock of similar guideline companies. Public companies are required to disclose detailed financial information. The capital market method is an appropriate valuation approach in cases where publicly-traded guideline companies are available. Capital market ratios of publicly-traded guideline companies are utilized to estimate the value of the subject firm.
Income Approach – A form of the income approach, the discounted cash flow analysis, is based on the premise that the value of the business is the present value of the future cash flow to be obtained by the owners of the business. This approach requires analysis of revenue, expense, working capital, financing, investment, capital structure, residual value and discount rate (including business risk). Another method is the direct capitalization of cash flow. This method is similar to the discounted cash flow in that a risk-adjusted discount rate is used along with a growth rate to convert a cash flow or cash flow stream to a present value.
Transactional Market Method – The value of the business is determined by comparing the subject firm to guideline firms that have been purchased or sold during a reasonably recent period of time. Several databases are accessed in our search for data on these transactions.
Cost Approach – Under this approach, the value of the subject firm’s assets and liabilities are discretely determined. This approach generally requires an appraisal of current assets, tangible real property, tangible personal property, amortizable intangible assets, and non-amortizable intangible assets. The approach is often used in holding company valuations or when valuing intangible assets.
As Business Valuers, we maintain the strictest confidentiality. The information you provide is used solely for the purpose to value the business. We do not pass on or share your information.
Two Types of Business Valuation Reports – Valuation Opinions, & Formal Business Valuations.
A Valuation Opinion Report provides a business professional’s opinion of value and it is not a formal valuation or appraisal. However, the formulas and valuation methodologies used in this report were developed by and are accepted by the business brokerage and / or business valuation communities. The application of these methods in the analysis documented in this report along with years of experience in evaluating such businesses, although not considered a formal valuation or appraisal, in our opinion provides a reasonable basis for estimating the likely selling / listing Price of a small business. The Valuation Opinion Report is prepared under a consulting engagement rather than an appraisal engagement. This report is appropriate for the purpose of Buy-Sell agreements, Exit Planning, Financial Planning or if you are acquiring or selling a business.
A Formal Business Valuation Report provides a Professional/Certified Appraisal’s calculated of value and as such IS a formal valuation or appraisal. This is an Appraisal Engagement and is used for the full range of business valuation needs. Reorganization, Bankruptcy, Sale of the company, Transferring shares, Financial reporting, Collateralization, Securitization, Fair value accounting, Forensic analysis, Corporate planning, Management information, Taxation planning, Restructuring to name the most common.
What Type of Valuation do You Need?
If you’re a smaller company with under $2M in revenue, with typical assets, then you may just be interested in our FREE one-page Valuation Opinion. If you’re interesting in finding out what your business might sell for, then this is where you want to start. If you’re a larger, more complicated business, we’ll provide a specific quote, just complete this short form:
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