101 Business Valuation Basics

When you complete a corporate valuation, you’re determining how much your business is worth. This can be a tricky process and you can get a lot of different answers depending on the model you use to calculate your corporate worth. The best thing that you can do for an accurate figure is to use corporate valuation services to come up with a very specific number for you based on certain formulas. You should also recognize that there are several different methods that can be used all of which could provide quite different results.

Liquidation: This number gives you the value of your business if you were to liquidate all assets right now. Because it is based on liquidation, it does not necessarily take into account future sales and production. Rather, it uses assets that you have on hand at the moment.

Compare: You can estimate your worth by comparing your business to similar businesses. This estimate should not be used for liquidation purposes because it does include future sales and other activities other than your assets alone. It can also be misleading since you cannot compare exact situations.

Industry Rule of Thumb: Essentially, this model uses general calculations to determine the value of your business. For instance, if you run an industrial machining business, your worth may be determined by multiplying the numbers of high-capital machines you own by an established dollar amount.

Seller’s Net Cash Flow: This method utilizes profit and loss statements to determine the worth of the business. Corporate valuation services can use this information to help you learn how to increase the value of your business through various methods. For instance, you might cut out some of the waste that you produce or limit spending in certain areas in order to increase your net worth. Again, it is always best to have professional valuation services work with you when attempting to sell your business.

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