One of the most important steps that business owners can take is to get a clear idea of the value of their business. There are a variety of different types of valuation models that can be used to help determine the value of your business However, a lot of these methods require varying amounts of information based on the type of information you have to work with.
For instance, the market-based valuation method is based on looking at similar companies to get a sense of what they’re valued at and then using that figure to estimate your own business’s worth. Although this is a straightforward and efficient method but it can be challenging when there aren’t enough comparable companies in the marketplace.
Another approach is to use a multiplication valuation model, which calculates your company’s value by comparing it to similar companies in the industry that have been acquired or sold recently. This is a good benchmark however it could become obsolete when market conditions change.
Finally, the asset-based valuation method is a bottom-up approach that examines your business’s physical assets like equipment, inventory, patents, goodwill and property to determine its value in total. This is a valuable method of valuation that you can apply when your company has lots of assets, but no profit.