1. BASE IT ON REVENUE
Revenue is the crudest approximation of a business’s worth. Often, businesses are valued at a multiple of their revenue. The multiple depends on the industry.
3. EARNINGS MULTIPLES
The relevant earning base (company profit) is multiplied by the earnings multiple to arrive at the business valuation. The earnings multiple reflects the risk attached to future earnings. The lower the deemed risk, the higher the earnings multiple. The higher the considered risk, the lower the earnings multiple.
3. DISCOUNTED CASH – FLOW ANALYSIS
Discounted Cash flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows. Future cashflow is arrived from financial forecast of your business & historical financials.
4. VALUE OF ASSETS
Add up the value of everything the business owns, including all equipment and inventory. Subtract any debts or liabilities.
5. BEYOND FINANCIAL FORMULAS
Don’t just base your assessment of the business’s value on number crunching. Value it based on your strategic position in the market and any expected synergies with the acquirer.