One of the most important steps that business owners should take is to have an understanding of the value of their business. There are a variety of different types of valuation models that can be used to determine the worth of your company but a majority of these methods require varying quantities of information based on the type of data you have at your disposal.
The market-based method can be used, for instance, by looking at similar companies to get an idea of their worth and then using this value to predict the worth of your company. While this is a simple and effective technique, it can be difficult when there aren’t enough comparable companies in the marketplace.
A multiples valuation model is another common method. It calculates the value of your company by comparing it to similar companies in your field that have recently been sold or purchased. While this is a great benchmark, it can also become outdated fast as market conditions change frequently.
The asset-based value method is a bottom-up evaluation that examines your business’s physical assets such as equipment, inventories, patents, goodwill and property to determine the value of each asset. This is an effective valuation technique which can be utilized when your company has more assets than profits.