There is no single way to value a business. However, if you are considering the sale of your company, it is likely that you will want to know how much you can expect to achieve from the sale – both for planning and marketing purposes.
Thankfully, most sellers tend to use one of four main methods as the best way of valuing their company, through assessing: price-to-earnings ratio, asset valuations, entry cost, and discounted cash flow. Below, we’ve explored each of these methods, in turn, providing an insight into the businesses that may suit each option, as well as an example of calculations for each.
Business Valuation FactorsNo matter what valuation method you choose, you will have to consider one or more of your business’ assets and factors.
Price-to-earnings ratioThe method of valuing a business by price-to-earnings (P/E ratio) is arguably the most common. It is considered the best choice for a business demonstrating strong profits as it can indicate both high forecasted growth and a track record of repeat business.
Asset valuationAsset valuation is often the method of choice for strong and stable businesses brimming with tangible assets, such as property and machinery.
Entry costThe concept of entry cost is just as it appears – the cost of creating your business from scratch should you start again.
Discounted cash flowDiscounted cash flow is a complicated valuation method that is almost exclusively used by large, established businesses such as energy companies that are likely to be able to predict cash flow.
Provides an interface between European customers and UK distribution partners. Bespoke customs clearance system Operates groupage service to and from Germany, Netherlands and Belgium.
Designs and installs a wide range of bespoke products, including indoor and outdoor kitchens, bathrooms, bedrooms, furniture, entertainment centres and bars. Caters to 10 active commercial clients. Client base includes several well-known organisation...
Specialising in greasing machines and dough lubrication, the company designs, manufactures, installs, commissions and services an array of products in the food processing industry. The business also offers a bespoke design service, building equipment...
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