A procedure or technique used to determine the value of a business.

Under each of the three broad approaches to small business valuation, there are a number of procedures, called business valuation methods, which you can use to calculate the business value.

The methods under each business valuation approach rely upon the same set of key assumptions. However, the procedural and mathematical details of each business valuation method may differ considerably.

Market-based business valuation methods

These methods help you estimate the subject business value by comparison to the recent selling prices of similar businesses.

Income-based business valuation methods

The income methods, as the name implies, determine the business value based on its earning power and risk.

Asset-based business valuation methods

Sometimes referred to as the cost-based methods, these business valuation methods estimate the value of a business as the sum total of the costs required to create another business of equal economic utility.

Using a number of business valuation methods is highly recommended for accurate determination of business value.

To conclude what a business is worth, you can take the results of several business valuation methods into account. This process is often referred to as business value synthesis.

Business Valuation using Three Approaches