How to properly determine the value of a business

The value of a business needs to be determined accurately for several purposes. An investor could be looking to support the company, a larger enterprise could be eyeing a merger, or a business owner might be selling the company and its assets.

Regardless of the reason, determining the value of a business can be done through three main methods. According to real estate investor Tyler Tysdal, some methods tend to be subjective thus different approaches have to be combined for more objective valuations. Here are some common business valuation methods:

Market value method

The market value method is known as the most subjective approach. This method measures the value of a business by comparing it to other similar businesses such as competitors and their current value. This makes it a challenge for sole proprietors due the mostly incomplete nature of data in the comparative aspect.

Asset-based valuation method

Combining the net-worth of all the business’s assets is another way. These assets may include properties, equipment, vehicles, and investments. Of course, the value of the business’ liabilities are deducted from total asset value.

ROI-based valuation

Lastly, entrepreneurs often equate the value of a business to company revenue. According to Tyler Tysdal, this is a practical method often used by potential investors.

Tyler Tysdal was the Managing Director of a single-family office with over $1 billion under management. Prior to the single-family office, Mr. Tysdal was Managing Partner of the private equity firm TIVIS Capital, where he was also the Co-Founder of Sports Shares, a fractional luxury suite club. For more reads on investments, visit this blog.