Have you ever wondered what the value of your business is? Most business owners searching on Google for “what is my business worth” will find countless articles and valuation calculators. However, through each search, you are left with unanswered questions. As such, I want to provide you with enough information that you are better equipped to either seek out a business valuation or reach out with questions for more detailed advice.
Within valuation, there are three common approaches:
- Income Approach
- Asset Approach
- Market Approach
Each approach is utilized when determining the value of a business.
Under this approach, a business valuation expert will dig into the cash flow of the business. The ability to generate cash flow each year ultimately impacts the value of your business. As such, when you are building your business, consider the value proposition of growing your cash flow.
Rarely, is the asset approach relied upon for purposes of understanding the value of your business. However, there are instances where this approach makes sense. For instance, the asset approach is observed for asset-intensive businesses like manufacturing or businesses with heavy research and development costs. As the approach suggests, the value of your business can be derived from understanding the value of your assets. The idea is to determine the fair market value of your assets less liabilities.
This approach is the most widely used and understood. When you want to know the value of your house or car, you do some quick research and find comparable cars or homes in your local area. The market-based approach is just that. This approach looks for comparable companies that are similar to your business.
Before seeking the opinion of an expert, you should understand how to value your business and why it matters.
If we can be of further assistance to you, contact us. We build business environments where people thrive and reach their full potential. Let us provide you with the information you need to understand the value of your business.