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Market approach offers you perhaps the most compelling way to determine the business value. Many business people and appraisal experts believe
the market to be the ultimate judge of what a business is worth.
In this sense, the business market value is revealed by the price the business fetches in an actual sale.
Comparison against the sales of similar businesses is the next best thing - you can gather enough statistical evidence to price
your business quite accurately.
Key uses of the market-based business valuation
Determining your business value by such market comparisons is especially useful in these situations:
- To set an asking price or offer price for a business acquisition.
- To defend your business valuation in a legal controversy or before the tax authorities.
- To justify your business value in a dispute such as partner disagreements or buyout.
Business fair market value estimation
Market comparisons are an excellent way to estimate the very important fair market value of a business.
This is by far the most common measure of business value - and is the de-facto standard used in most business valuations.
Valuation Multiples: business value calculation
You can use a number of valuation multiples to estimate your business fair market value.
All such multiples are statistically derived ratios that relate the potential business selling price to some measure of its financial performance.
Using the valuation multiples derived from comparable business sales, you can determine what your
business is worth based on its recent revenues, net income, discretionary cash flow, EBITDA,
total assets or book value, among others.
For example, you can take the Price to Gross Revenues Multiple and
multiply it by your business revenue figure. The result is the market-based estimate of what your business is worth.
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