Business Valuation

Business valuation is defined as the process of determining the economic value of a business or company. A business valuation is useful to determine the fair value of a business for a variety of reasons. This includes sale value, establishing partner ownership and divorce proceedings. The owners of a business will often seek advice from professional business valuators for an objective estimate of the business value.

One of the first factors to consider for business valuation is the impact of the economic conditions that apply in the area where the business operates. Business valuation is also defined that is a strategy that is used to assess the essential or intrinsic value of a business, or the owner’s interest in that business. Business valuation as a field encompasses a wide array of fields and methods. The tools and methods for business valuation vary between valuators, businesses and industries.

There are various business valuation methods used by a business valuator to determine the fair price of a business. The asset-based approaches total up all the investments in the business. This asset-based valuation method can be done on a going concern or on a liquidated company. For the going concern this approach lists the business net balance sheet value of its assets and subtracts the value of its liabilities. For a liquidated company the approach determines the net cash that would be received if all assets were sold and liabilities paid off.

The second method is earning value approach are based on the idea that a business's true value lies in its ability to produce wealth in the future. The most common valuation method is capitalizing past earning. The third method is market value approaches. Under this method is to establish the value of your business by comparing your business to similar businesses that have recently sold. Among all the three methods the Earning Value Approach is the most popular business valuation method. However some combination of business valuation methods will be the fairest way to set a selling price.

Questions:

• What is business valuation?
• What are the business valuation methods?