Business Valuations (How to Value a Business)
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What is "Value" in the Business Valuation?
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The whole reason behind business valuation is to "value" a business. But what exactly is "value" in the business valuation? This is often where much of the confusion comes from in business valuations. Let’s go over this step by step.

First, valuing a business is an opinion. Stated differently, value is an appraisal of worth. So, the words "value" and "appraisal" are generally synonyms. But how do you know what something is worth? Well, it depends on how you define the word "value."

Second, there are multiple ways to define "value", some of which include the following:
  • Fair market value (discussed below)
  • Fair value (discussed below)
  • Book value – the assets of the company
  • Investment value – what something is worth to a specific buyer or owner
  • Intrinsic value – determined by outside consultants without actually looking at the specific business (has little value in business valuations)
  • Going concern value – what a business will be worth in the future
  • Liquidation value – what a business is worth when it is going out of business
The definition of value will often depend on the reason why you’re valuing the business. For example, if the business is being dissolved, you’d choose the liquidation value. If you’re looking to invest in the business and want to know what it is worth, you’d choose the investment value.

With that said, the most common types of value are the first two mentioned above: fair market value and fair value.

On the next page, we’ll look at both fair market value and fair value.

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