Business Valuations (How to Value a Business)
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Business Valuation Overview
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There are generally four (4) main factors in determining value, which include:
  1. Reason(s) for Value
    • Purchase or sale of business
    • Buy-sell agreement
    • Divorce
    • Dissolution
    • Etc.
  2. Definition of value
    • Fair market value
    • Fair value
    • Book value
    • Etc.
  3. Methods of Value
    • Income approach
    • Market approach
    • Asset-based approach
  4. Type of ownership
    • Is the company owned by one person or a corporation with thousands of shareholders? This will impact the valuation of the company.
We’ll explore the first 3 factors in more detail on the following pages. The fourth factor, "type of ownership", deals with who the owners are, how many owners there are, and whether the business is an individual or business entity (like a corporation or LLC). (Please explore the Legal Category "Business Law" for further details on types of business entities).

Also, keep in mind this key concept -- the date the business is valued is called the valuation date. Under this concept, the value is stuck in time at the date of the valuation. That’s why businesses must be occasionally re-valued to keep an up-to-date valuation of the business.

Next, we’ll go over many of the reasons why to value a business.

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