How To Value a Small Business
Understanding the methods professionals use to determine business value.
Valuing a small business is both an art and a science. While there are established methodologies, the final value also depends on qualitative factors like brand reputation, customer relationships, and growth potential.
Professional business valuators typically use one or more of the following approaches:
Income-Based Approach
Values the business based on its ability to generate future income, typically using Seller's Discretionary Earnings (SDE) or EBITDA multiples.
Market-Based Approach
Compares your business to similar businesses that have recently sold, using industry-specific multiples and transaction databases.
Asset-Based Approach
Calculates the value based on the company's net assets — the total value of tangible and intangible assets minus liabilities.