Business Valuation Methods
5 professional business valuation methods to get the best price for your business
📊Valuation Approach Overview
Income Approach
Based on expected future profits
Market Approach
Compared to market transactions
Asset Approach
Based on net asset value
Why is proper valuation important?
Accurate valuation helps you negotiate confidently and get fair value. Avoid overpricing (can't find buyers) or underpricing (losing value).
🥇Method 1: EBITDA Multiple Method
📋 Concept
Most popular method. Multiply EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by appropriate industry multiple.
Formula:
🧮 Example Calculation
📊 Industry Multiples
Technology
8-15x
Manufacturing
4-8x
Services
3-6x
Retail
2-4x
Real Estate
6-12x
Healthcare
8-15x
🥈Method 2: Discounted Cash Flow (DCF)
📈 Concept
Values business based on future cash flows discounted back to present value using appropriate discount rate.
🔢 Calculation Steps
💰 DCF Example ($ Millions)
| Year | Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| 1 | 8.0 | 0.909 | 7.3 |
| 2 | 9.0 | 0.826 | 7.4 |
| 3 | 10.0 | 0.751 | 7.5 |
| 4 | 11.0 | 0.683 | 7.5 |
| 5 | 12.0 | 0.621 | 7.5 |
| Terminal | - | - | 15.0 |
| Total | - | - | 52.2 |
🥉Methods 3-5: Revenue Multiple, Asset Based & Market Comparable
📊Revenue Multiple
Multiply annual revenue by industry multiple
🏢Asset Based
Net asset value (Assets - Liabilities)
📈Market Comparable
Compare to similar companies that sold
⚡Factors Affecting Valuation
📈Value Enhancing Factors
- ✓Consistent growth track record
- ✓Diversified customer base
- ✓Strong management systems
- ✓Strong market position
- ✓Experienced management team
📉Value Reducing Factors
- ✗Dependence on few major customers
- ✗Intense competition
- ✗Declining industry
- ✗Owner dependency
- ✗Legal or environmental issues
Need Professional Business Valuation?
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🧮Quick Valuation Tool
Use these simple formulas for initial estimation:
Small Business
EBITDA × 2-4
Revenue < $50M
Mid-Size Business
EBITDA × 4-7
Revenue $50-500M
Large Business
EBITDA × 7-15
Revenue > $500M