Determining a fair price for the business can sometimes be a difficult undertaking. There is a variety of valuation methods that should be taken into consideration. Here are a few:
- Capitalized Earning Approach: Focus placed on the return on the investment that is expected by an investor
- Excess Earning: Similar to the capitalized earning method, except that it separates return on assets from other earnings
- Cash Flow: Typically used when attempting to determine how much of a loan the cash flow of the business will support. This information can be used as a benchmark to measure the firm's ability to take on debt.
- Tangible Assets: Values the business by total tangible assets.
- The value of Specific Intangible Assets: This method compares buying a wanted intangible asset versus creating it.