How to value a business
In "how to value a business", one must consider several first-principle questions.
The nuances are wide-ranging and different for every business.
Broad determinants will start with the answers to some important questions.
How to value a business of mine
The owner of a business will always have a different value in mind to everyone else. It is usually higher. This is not as raw as it may sound. It is not because of an anticipated negotiating squeeze. For most business owners, their businesses are de-risked because they:
How to value a business I want to buy
A buyer of a business is usually at a disadvantage in estimating a fair price at which to make an offer. When they consider how to value a business that interests them, they have unknowns.
They cannot know the minutiae of the target, the current owner, and its management.
A diligent buyer will do their utmost to uncover the value in the price. But at some stage, they will need to make a call.
In the raw, it looks like this:
How to value a business for a successful deal
The seller usually has the information. The buyer is well motivated to discover the information to appease his fear of risk. It is up to them to construct a pitch story in such a way that mitigates risk for the buyer or investor.
And that starts with an objective business valuation by a trained professional. They know how to value a business to uncover the inherent risks. On the business valuation report, it is up to the business owner, seller, investor, or buyer to act.
Owners and sellers can deal with the risks or adjust their expectations. Investors and buyers can address unmitigated risk through price or terms adjustments