A closer look at the market approach method of business valuation

There are three main methods to business valuation: the market approach, the income approach, and the asset approach. Real estate investor Tyler T. Tysdal singles out the market approach as the most commonly-used among the three. Based on his extensive entrepreneurial experience, he recognizes the merits of the approach, which relies on perceptions of the market on specific and types of businesses similar to the business being valued.

Adherents of the market approach study the business market value, which is to say the value of other similar businesses that have been put up, sold, and bought before.

Business valuators prefer the market approach because it’s more or less straightforward (compared to the other approaches). Solid comparative sales data and public company data as the bases of the approach allow objective assessments of value.

Business valuators also have business value measures, or pricing multiples (taken from business financial performances) that contribute to the estimation of a business’s worth. These numbers also reflect the ratio of the estimated business value to a number of traits that embody financial performance.

What do you think of the market approach? Would you use it for your own company? Feel free to share your thoughts in this Tyler T. Tysdal blog by participating in the comments section below.

Tyler T. Tysdal is a real estate investor. He also believes that part of creating a positive impact in society is pursuing conscious capitalism and charitable work. Learn more about Mr. Tysdal’s work here.