Business valuation is a financial modeling process created to estimate the enterprise value of a business. Valuation is used by individuals in financial markets to determine the price they are willing to pay or receive to effect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are used by to resolve legal disputes related to:
- estate and gift taxation
- divorce litigation
- buy-sell agreements
- shareholders deadlock
There are two premises of value that must be used to establish for business evaluation. Either the business will be valued as a going concern or for Liquidation purposes. The economic conditions of national and local markets will change the value of your business as well as the current conditions of the industry. Multiple approaches can be taken to value your business however for companies as a going concern, the free cash flow generated by the business is most widely accepted. Other approaches include comparability analysis, asset based approach and market approach.