Valuing the Business

Arriving at the Price or Value of the Business
This is one of the big questions when buying. How much is the business actually worth and is the price the seller is asking, fair and reasonable?

Setting a price for a business is not simple or exact, and while there are a few methods that can be used for valuation, at the end of the day the price of the business will depend to a large extent on what you, as the buyer, are prepared to pay for it.

Each valuation method will arrive at a range of price options and at best it can be a starting point for negotiations of a price that both parties agree to.

Some methods of valuation include:

  1. Asset value methods. These methods look at putting a value on the assets that are being taken over and include; book value, amended book value, replacement value, market value, and quick sale value. They also include a value for Goodwill.

  2. Earning value methods. This type of valuation method recognises that the true value of the business is not simply in its assets, but also in its potential to earn future profits....

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