Five Common Methods Used to Determine the Value of a Business

Five Common Methods Used to Determine the Value of a Business

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If you are looking to sell your business in the UK, your first step is to know how much your business worth. This will help you come up with a realistic asking price for your business. For this, you will need to have a business valuation done by a professional.

While business valuation sounds easy enough, it takes preparation and thought to get it right. There are some methods used to value a business. These include the following:

Considering the Industry’s Pricing Guidelines

Industry-based valuation for businesses for sale UK is a common method of determining a business’ value. Because every industry is different, business owners who want to sell their business should research their industry, determine industry rules, and formulas as well as understand where their business lies within the system.

Evaluating a Business Based on Comparable Businesses

A review of comparable businesses makes it possible to evaluate the possible worth of a given business. This method is not always accurate as each business is different which means different locations, customers, tools, and equipment. This method can be a good place to start when getting a ballpark figure.

Determining a Business Value Based on Assets

Business valuation based on assets can provide owners with a good idea of how much their business is worth. This method considers both tangible and intangible assets as well as appreciation rates. It works by adding up the value of these assets and subtracting any liabilities. Although the figures in one’s accounts are a great starting point, financial advisors must be prudent. This means using the minimum assets that could be sold for. That is why business owners must be realistic when evaluating their assets’ value.

Valuation Based on Asset Liquidation

This is based on the amount of money the owner of the business would get after selling all the tangible assets on the open market right away. This method can be useful for businesses that are about to close down for good. Businesses that are looking to continue cannot depend on this method since it does not take intangible assets into consideration.

 

Assessing Business Value Based on Entry/Start-up Costs

This includes gauging the amount of money required for building the business from scratch to achieve its current revenues, size, and status. It considers the resource and time needed to train employees, by premises, and equipment as well as establish branding and marketing. Because this method does not consider tangible assets, it is not always accurate.

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