Business Valuation 101 -- Info Guide to Business Valuation & Appraisal Methods

Business Valuation Methods

There are several business valuation methods used, with pros and cons to each.

Adjusted Book Value Method
A safe valuation method based on the assets and liabilities of a business.

Asset Valuation Method
Used for businesses that own a lot of physical assets, such as in manufacturing.

Balance Sheet Method
Used for businesses that are losing money, based on current asset worth.

Capitalized Earning Method
Based on the rate of return in earnings. For small businesses, this is around 25%.

Cash Flow Method
Based on how much financing one could get based on the business cash flow.

Debt Assumption Method
Based on how much debt a business could have and still operate using cash flow.

Discounted Cash Flow Method
Discounts projected future earnings to adjust for growth, inflation and risk.

Liquidation Value Method
Business valuation similar to the adjusted book value method.

Multiple of Earnings Method
A common valuation method that uses a cash flow multiple to calculate worth.

Market Multiplier Method
Uses industry-average values from recent business sales as a multiplier.