Valuation Methodologies


We use up to 8 valuation methodologies across 3 different approaches to determine a Most Probable Selling Price for your business. 3 methods from the Income Approach, 3 methods from the Market Approach, and 2 methods from the Asset Approach. When it comes to valuing your life’s work, don’t accept any less.

The final value is determined with a weighted average of the values that derive from each of these methods. The reason we use a weighted average of different approaches instead of just using one or two is because some methods may be biased against companies with higher asset to income ratios, for example. By using more than one valuation methodology to derive the opinion of value, the figure would come closer to the most probable selling price.

The valuation methodologies in each approach are:

INCOME APPROACH METHODS

Most useful when – There is historical and current income.
Least useful when – There is little or no income.

1) Discounted Cash Flow (DCF)
2) Multiple of Discretionary Earnings (or Discretionary Cashflow)
3) Capitalization of Earnings

MARKET APPROACH METHODS

Most useful when – There are more than 3-5 comparable market transactions of similar business type and size in the last 5-7 years.
Least useful when – There are little or no comparable or the business is so unique that there are few like it.

1) SME Transaction Comparables
2) Public Company Comparables
3) Merger & Acquisitions Comparables

ASSET APPROACH METHODS

Most useful when – The fair market value of assets represents most or all of the value of the business and the business has little or no income.
Least useful when – The business has income to determine a better market value of goodwill.

1) Capitalized Excess Earnings
2) Asset Accumulation Method