Insights + Resources

Business Valuation Approaches

Mar 4, 2020

business valuation showing laptops
Here’s what you need to know

In the third quarter of 2019, more than 2,400 small businesses were sold. The median sale price was roughly $278,000, up 3.3% from 2018.1 All Business Valuation models are different. How should you value yours?

As a business owner, ascertaining the value of your business is essential for a variety of reasons, including business succession, estate tax estimates, or qualifying for a loan.

There are several valuation techniques, ranging from the simple to the very complex. Outlined below are three different approaches to valuing a business.

Comparable-Company Analysis. One approach to determine the value of your business is to use a comparable-company analysis. Look at the numbers for a business that is similar to yours in industry, size, and growth. By using the metrics from one or more companies that are most like yours, you can create a ballpark estimate as to the value of your business.

EBITDA Model. Using your business data is another method to help put a price tag on your enterprise. Using the EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) model can give a more detailed picture of your financials. EBITDA takes the business debt into account, which can be an important factor when considering selling your business. Your business may be more attractive to potential buyers if all the assets aren’t already leveraged against existing debt.2

Asset-Based Valuation. The asset-based valuation method calculates the value of all tangible and intangible assets held by the business. This approach ignores the future earnings potential of the company. Thus, a pure asset-based valuation model is often used for companies that are bankrupt or looking to liquidate.3

The economy and other factors in the market may also determine the saleability of your business. Before moving forward with a business valuation, consider working with legal and tax professionals who are familiar with the process. Also, a qualified business appraiser may be able to offer some valuable insight. Ask us at Epic Capital for a recommended business appraiser today.

Tags: , , , ,

More Insights

Jul 22, 2021

The news keeps getting better for Social Security recipients. It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983.1,2

Jul 21, 2021

Inheriting wealth can be a burden and a blessing. Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if … Continue reading “Coping with an Inheritance”

Jul 19, 2021

It’s long been an aspirational target for entrepreneurs. It literally goes beyond “blue sky,” in terms of location, to a place no business has gone before: Outer Space! The name of the game is commercial space travel.

Jul 16, 2021

With all the attention given to inflation, stock prices, and job reports, it’s been easy to overlook the remarkable move in the bond market during the past few months as bond yields have fallen. The yield on the 10-year treasury closed at 1.37% on Friday, July 9, down from its 2021 high of 1.74% in … Continue reading “The Quiet Fall in Bond Yields”

Jul 14, 2021

On July 6, oil prices reached a six-year high of $76.98 a barrel. This benchmark came as the Organization of the Petroleum Exporting Countries (OPEC) and allies failed to reach an agreement regarding an increase in production.1 This rise in cost follows a year in which OPEC and allies cut production amidst the COVID-19 pandemic. … Continue reading “Oil Prices Hit Six-Year High”

Insights + Resources >