Useful paper on the principles of business valuation

Many business owners have some idea of what their business should be worth. Often based on key benchmark figures that circulate for the industry. But in practice it turns out time and again that a thorough  company valuation leads to quite a different value.

The gut feeling is mostly based on rules of thumb that circulate in the industry for determining enterprise value. For instance: 5 to 8 times the net profit. 3 to 5 times the EBITDA. Or 4 to 6 times the EBIT. Or even 1 time annual sales revenue. Simple formulas that have 1 thing in common. They lack any kind of detail. And especially in business valuation, the devil is in the details.

Therefore, it is important to use a reasoned method. In this paper, we distinguish the business approach and the market approach. We go into more detail about the different aspects involved.

Which method is most appropriate for your company depends on your specific situation. Sometimes a combination of methods is also used, for example to test whether different approaches lead to the same valuation.

And we look at the various factors that (can) play a role in a good business valuation.

Download this paper for more background information. We cover successively:

• Reasons for a business valuation
• Factors to consider
• The business approach to valuation
• The market approach to valuation
• From enterprise value to shareholder value
• Special concerns

Or make an appointment with one of our a certified “valuators.