What is Business Valuation? And what are the four Common Methods?

Business valuation is a process of objectively estimating the value of your business or in other words, determining the economic or fair value of your business.Usually, if you are looking to sell all or a single unit of your business or wants to acquire and merge with another business, you have to do such valuations. Apart from these particular situations, it is vital for you to valuate your business for taxation purposes.

Valuating a business involves analysing the market values of assets, capital, and earnings. You can use many methods that are available to valuate your business.

In this post, we list the four most commonly used methods.

1. Valuation based on assets:

In this method, you should valuate all the tangible and intangible assets of your business. Examples are cash, infrastructures such as equipment, buildings, inventory, IP, patents, customers, etc.

2. Valuation based on historical earning:

In this method, you should look at all the previous transactions. Ideally, your business should generate sufficient revenues to pay your debts and to maintain positive cash flow.

3. Valuation based on similar businesses:

In this method, you can valuate your business by comparing it with another similar sized business operating in the same market.

4. Valuation based on discounted cash flow (DCF):

In this method, you should find your business’ net future profit and discount it to match the present value. Thereby, you are valuating your business. Usually, all businesses when they have to get valuated, they take the help of experts who can do this effectively and efficiently. We, at Resurgent India are a step ahead as we offer you many digital tools which are big data analytics backed and AI driven. Feel free to explore our products and services by clicking the link.