Looking to acquire a business, or sell a percentage of your own? Use our helpful business valuation calculator to get a rough idea of what a business is worth.

Page written by AI. Reviewed internally on May 17, 2024.

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This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

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## How is the value of a business calculated?

The value of a business can be calculated using various methods, depending on the nature of the business and the purpose of the valuation. Here are three common approaches used to determine the value of a business:

1. Market-Based Approach: This approach relies on comparing the business to similar companies in the market that have been sold recently. The valuation is based on the prices at which comparable businesses were bought or sold, considering factors such as industry, size, growth prospects, and financial performance. This approach assumes that the market value of similar businesses reflects the value of the subject business.

2. Income-Based Approach: This approach focuses on the income generated by the business to determine its value. One common method is the discounted cash flow (DCF) analysis, which estimates the present value of the business’s future cash flows. It takes into account factors like projected revenue, expenses, capital expenditures, and the time value of money. The DCF analysis calculates the net present value of these cash flows to arrive at a valuation.

3. Asset-Based Approach: This approach values a business based on its tangible and intangible assets. Tangible assets include physical properties like real estate, equipment, and inventory. Intangible assets can include patents, trademarks, copyrights, brand value, and goodwill. The asset-based approach involves determining the fair market value of all the business’s assets, deducting liabilities, and arriving at the net asset value.

These are general methods used in business valuation, but it’s important to note that the specific circumstances of a business may require a combination of approaches or the use of other specialised methods. Additionally, factors such as market conditions, industry trends, competition, management expertise, and potential risks can also influence the final value of a business.