Many business owners, at some point in time, ask themselves 'what is my business worth'? Almost all business owners will, at some point, need to establish the value of their business. Ultimately, any venture is worth what someone is willing to pay for it - depending on how much profit a purchaser can make from it, balanced by the risks involved.
Beyond stock and fixed assets (such as equipment and property), it is often intangible factors - such as goodwill and intellectual property - that provide the most value. Many businesses have almost no tangible assets beyond office equipment; however, their intangible assets may have significant value.
Business Valuation Methods
Maintainable Earnings Valuation
The historical – and expected maintainable future - profitability of a business is used to determine its current value. A maintainable earnings valuation is especially useful for business valuation when profits may be expected to remain stable. Maintainable earnings are typically calculated from the financial performance from the past three or four years.
The relative valuation method quantifies a value based on arm’s length open market transactions of a number of closely comparable businesses.
A company’s assets include tangible and intangible items. For certain industries and types of business, the book or market value of those assets can be used to determine the company’s worth. For trading ventures, the Net Asset Value may reflect the lowest value a company is likely to achieve.
Discount Cash Flow Valuation
The Discount Cash Flow (DCF) method can be appropriate if profits are not expected to remain stable in the future. The DCF method takes a business’ future net cash flows and discounts them to present day values.
R A Valuation Services specialises in providing sensibly and competitively priced formal company valuation and business valuation reports for all types and sizes of sole traders, partnerships, LLPs, private limited companies businesses and other organisations in the UK and Europe.
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