How a Valuation's Purpose Affects Its Value
What is the value of my business? That's the question every business owner wonders from time to time. But the correct answer varies depending on the purpose of the appraisal. Different rules and "standards of value" may apply in different circumstances. There are a number of reasons you might want to determine the value of a business, including: Business planning, Potential sale or purchase of a business, Gift, estate and other tax purposes, Buy-sell agreements, Business liti
Driving the Value of a Business
Under the market and income approaches, operating businesses are valued based on how much cash flow they're expected to generate in the future. In other words, cash flow drives value. If you want to increase value, you need to increase sustainable cash flow. Notice, we said the sustainable cash flow. While it might look good to have a short-term increase, an educated buyer will see through any non-sustainable increases and adjust those in determining the purchase price. Here
A Closer Look at the Market Approach
There are three approaches to valuing a business: the cost, market and income approaches. In this article, we focus on the market approach, which the International Glossary of Business Valuation Terms defines as: A general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership interests, securities, or intangible assets that
