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How To Calculate The Value of A Business?

Calculating the value of a business is not just a magic num​ber times profits.

There are some key questions to ask first which can determine what is the right method.

This is our process for assessing the value of a business, based on international best practices and standards detailed in APES 225 - Valuation Services.

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Methods of Calculating The Value of a Business

The ATO has a hierarchy of methods for calculating the value of a business that they consider is appropriate, depending on the circumstances.

  1. Market Transaction (or Last Money In)

  2. Income Method (DCF, Earnings Multiple)

  3. Asset Method

  4. Cost Method

  5. Rules of Thumb

Each method is applicable in different circumstances and conditions (such as the state of the business, the reason for the valuation, the standard of value to be used and the scope of the valuation).

If you haven't already, download our Value Calculation Guide and follow the process shown below.

As you answer the question in each diamond, click on the relevant box to get more detail on that method of calculating the value of a business.

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Business valuation process
Market Business Valuation Method
Earnings Multiple business valuation method.
Asset Business Valuation Method
Cost Business Valuation Method
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Now You Have Calculated The Value of a Business - What Next?

Getting a ballpark value by using our online business valuation guide will always be helpful to the business owner.  It will give you a guide to critical negotiations or help indicate if investment in the business is worth the return on investment. 

You can use this valuation guide to:

  • Identify improvements that will increase the value of a business.

  • Identify opportunities to attract buyers that will pay a higher price.

  • Develop action plans that maximise the value of your business.

As long as the online valuation guide ​has been detailed enough and done correctly.  Otherwise it really is just a quick estimate the of the value of a business.

It is not independent, it has not been completed by someone with experience and may even be wrong.

You may need a more detailed analysis of what your business is worth, and not just an estimate.

A more accurate business valuation will take into account the current market trends, industry issues and identify adjustments that are not covered in our online business valuation guide.

If you find you need a more detailed business valuation then send us an enquiry and we will discuss your circumstances confidentially and no obligation.

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DISCLAIMER

This valuation process and information is general in nature and is to be used at your own risk and discretion.  We take no responsibility for any errors in calculation or judgement that you may make based on our information or advice.

We are not responsible for any commercial loss you may realise as a result of relying on the information or analysis that you complete.

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