Getting a clear picture of your company’s value is among the most important actions for business owners to take. There are numerous valuation models that you can use to determine the value of your company. However, each model requires a different amount of information, based on what data is available.
For example, the market-based valuation method involves looking at comparable companies to get a feel of what they’re valued at and then using that value to determine your company’s worth. This is a straightforward, yet efficient technique. However it can be difficult when there aren’t many similar businesses.
Another approach is to utilize a multiples valuation model that calculates your company’s worth by comparing it with similar companies in the same industry that were acquired or sold recently. While this is a great reference, it could become outdated quickly as the market’s circumstances change regularly.
The asset-based method is a bottom-up analysis that uses your business’s physical assets such as inventories, equipment, patents and property to determine the value of each asset. This is a great valuation technique that you can use in cases where your company has more assets than income.