How To Value My Business?

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As a businessman it is of utmost importance that you know the value of your business at any given time. There are 3 different commonly used approaches to calculate the value of your business. It is vital that you know the value of your business for several reasons. Such as when planning on selling your business, or merging, when buying a new business, penetrating a different market are among other reasons. Listed below are the different approaches to be used.

Income Approach

The income approach is very simple and accurate. This approach takes into account the income generated by the business during a financial year to measure the value of the business. This approach uses 3 main methods to do this. It uses the discounted cash flow method which calculates the net cash flow into the business during a specified period of time. The next method is the capitalization of the earnings where the income is divided by the capital to calculate the risk factor. These two methods are straightforward and easy to calculate. A more complex method is determining the discretionary income stream and multiplying it with various predetermined factors.

Asset based Approach

The Asset based calculations to value a business is also fairly straightforward. This method calculates the values of the assets all tangible and intangible to decide on the value of the business. Note that the Goodwill of the business will also be included here. It’s best if you could hire an independent valuer here in the market to assess the accurate value of your business.

Market Approach

The market approach can be quite tricky and it’s always best to get help from business valuers Melbourne in this case. As the market approach uses the external factors such as competition and subsidiaries to assess the value of your business. Using information of previous assessments of your own or other business are also deciding factors here. Most modern businessmen prefer this approach and deem it to be more accurate.

Conclusion

In conclusion, it is impossible to decide which method would be the best choice. In fact, sometimes a mixture of all three methods may make a more accurate valuation of your business. The appropriate method would also hugely depend on the kind of products you are producing and the industry you are in. So deciding on a method or two based on all other factors would be the most appropriate choice in my opinion. However, as with all things opinions are different and not any one opinion is the exact right one. So feel free to choose any method you deem appropriate for your business to calculate the value of your business.

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