Business Valuation Methods
Placing a value on a company is a complex procedure. The methodology can vary depending on the type of business and the reason for the valuation. There are a wide range of factors that go into the process. From the company's book value to a host of tangible and intangible elements, the appraiser must consider all the relevant facts. In general, the value of the business will rely on an analysis of the company's cash flow. In other words, its ability to generate consistent profits will ultimately determine its worth in the marketplace.
Business valuation should be considered a starting point for buyers and sellers. The more informed the parties in a transaction are, the better the likelihood of a good deal. Of course, each party has different motivations, but fair market value is the price a seller will accept and a buyer will pay.
Understanding Business Valuation
There is confusion about the rationale and justification for a formal business valuation prior to taking a business to market, i.e., the value of a valuation. Selling a business is far different from selling a house or other tangible asset where there exists comparable sales information sufficient to support a value. Unlike real estate, it is not unusual for 50% or more of an operating business’s value to be based on intangible assets such as goodwill, intellectual property, licenses, location, etc.
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