How to Value a Business

Here are 5 Common Ways to Approach Business Valuation

The questions is often asked, how do I know what my business is worth?

It's an important question.

And as a business owner, you should never list your business for sale until you know what the answer to that question is.

As a professional business brokers in BC, we use 5 business valuation methods to accurately determine what a business is worth, and what that business will sell for.

Here are the 5 Business Valuation Models that we use:

1. The MARKET Business Valuation Model:

This model compares the subject company to similar businesses that have sold recently.

Business brokers gather information about the selling price of comparable companies and make adjustments for differences in size, profitability, growth prospects, and other relevant factors.

This method is typically used for small to mid-sized businesses.

2. The INCOME Business Valuation Model:

This model focuses on the future cash flow generated by the business.

Business brokers estimate the expected future earnings of the company and then calculate its present value using a discount rate.

This method is often used for larger businesses with stable cash flows and predictable growth.

3. The ASSET Business Valuation Model:

The asset model determines the value of a business based on its net asset value.

Business brokers calculate the current value of all the company's tangible and intangible assets and subtract its liabilities and any outstanding debts to arrive at a business value.

This method is commonly used for businesses with significant tangible assets or when the market approach or income approach is not suitable.

4. The MULTIPLE OF EARNINGS Business Valuation Model:

In this model, business brokers determine the value based on a multiple of the company's earnings.

The multiple is typically derived from prior transactions in the industry or similar businesses' sales data.

The broker applies this multiple to the subject company's earnings to estimate its value.

This approach is commonly used for smaller businesses with a consistent and predictable earnings history.

5. The INDUSTRY SPECIFIC Business Valuation Model:

In certain industries, specific valuation methods are adopted to determine the value of a company.

For example, in the technology industry, valuation methods like discounted cash flow analysis or venture capital methods may be employed.

It's important to note that business valuation is not an exact science, and the choice of approach may depend on the specific circumstances and characteristics of the business being evaluated.

The Role of Brokers in Determining Business Value

Business brokers play a critical role in determining the market value of a business.

A professional business broker like Stonebridge Business Brokers of BC with extensive knowledge and experience in the industry allow them to combine a variety of valuation methods to determine an accurate market value of a business

We consider factors such as industry trends, market conditions, competitive landscape, and economic outlook to determine the most relevant valuation approach for a specific business.

Stonebridge Business Brokers of BC also have access to databases and networks that provide them with invaluable transaction data, allowing us to compare your business to similar ones that have been sold recently.

In addition, we evaluate the corporate financials, examine the company's growth and profit potential, assess its position in the marketplace, and consider any risks or challenges to arrive at a comprehensive valuation.

Conclusion

Determining the true and accurate market value of a business is a complex process that requires expertise and a thorough understanding of various valuation approaches.

Business brokers are equipped with the knowledge and resources to assess the worth of a business accurately.

By combining different valuation methods, considering market conditions, and analyzing relevant data, an experienced and professional business broker like Stonebridge Business Brokers can provide comprehensive and reliable business valuations.

If you are considering selling your business in BC, or selling your business in Alberta or Saskatchewan, we can help.

Contact:

Chris Hall

Senior Business Broker

604-866-2236

stonebridge@businessbrokerbc.ca