Business Valuation Methods: Part 1

 

1. Asset-Based Approaches

Basically, these business valuation methods total up all the investments in the business.

Asset-based business valuations can be done on a going concern or on a liquidation basis.

  • going concern asset-based approach lists the business’s net balance sheet value of its assets and subtracts the value of its liabilities.
  • liquidation asset-based approach determines the net cash that would be received if all assets were sold and liabilities paid off.

Using the asset-based approach to value a sole proprietorship is more difficult. In a corporation,  all assets are owned by the company and would normally be included in a sale of the business. Assets in a sole proprietorship exist in the name of the owner and separating assets from business and personal use can be difficult.

For instance, a sole proprietor in a lawn care business may use various pieces of lawn care equipment for both business and personal use. A potential purchaser of the business would need to sort out which assets the owner intends to sell as part of the business.

Part 2 Coming Soon…

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