It is always essential to determine the value of your business with the proper understanding of basic company valuation methods. It is also important when you are considering a company to acquire. The company valuation can be done in different ways either taking help form the professional business appraiser or attempting to conduct the self-evaluation. The professional business appraiser usually applies different business valuation methods as per the characteristics of the business. Among those methods, the three mostly used methods are the Comparable Worth method, the Asset Valuation method, and the Financial Performance method.
- The Comparable Worth Method
The way of comparing the performance and possible selling prices of the publicly as well as privately held companies with your company refers to the comparable worth method for company valuation. The publicly held companies that belong to the similar kind of field like your business and produce similar kind of product or service is taken by the appraiser for conducting valuation. The major reason for using this valuation method is that potential buyers tend not to pay more for the targeted company in comparison to what they would like to spend for a similar type of company traded publicly. In case of comparison, the appraiser, be it you or any professional person, needs to choose carefully the publicly held companies for his comparison. Both the companies should be similar on the fields like product and/or services they produce, geographical locations, as well as their relationships to the suppliers.
- The Asset Valuation Method
When a company has a major portion of its value covered up with fixed assets, the appraiser needs to focus on the valuation of its assets to set its price. Usually it is essential for selling accompany, as the business owner needs to determine the value of his company in the industry. The justification of this asset valuation method is that the potential buyers will not pay sufficient amount for the targeted company than it deserves to be priced based on a comparable set of the substitute assets. In order to evaluate the value of substitute assets, the appraiser needs to focus of different points such as calculation of the ‘Cost of Reproduction’ which is actually the construction of a substitute asset with the use of same materials like the original one but in the present scenario. Alternatively, the appraiser may focus on the ‘Cost of Replacement’ which is obtaining the same asset as per the current price with the adherence of modern materials as well as modern standards.
- Financial Performance Method
In course of valuing a business for sale, the most commonly used method is financial performance method. This method is enormously used for the businesses of all sizes- small-to medium companies. Especially when it comes about how to sell a business, this method is greatly effective as this method is based on the evaluation of historical performance of the targeted company as well as the future prediction of its performance so that it would be helpful for the business owners for selling business.
Nowadays, with the advancement of technology, the appraisers are using the digital due diligence method for in-depth investment research for their online assets which helps to generate great amount of traffic through online channels that ultimately lead to know the company valuation and assist them in helping you to sell your company.