There is no single formula that can be used to precisely value every privately owned business.
There are relatively easy ways to value certain parts of a business, particularly liabilities as they are usually finite, but stock and fixed assets will only be known on realisation, otherwise the values will at best, have to be based on estimates.
There are a number of different valuation methods that are commonly used to try and value a
business because of these problems,
- P/E Method - The Price/Earnings Ratio method is to calculate, however there is no standard
- P/E ratio figure that can be used to value every business.
- Entry Cost Method – Predicted cost to start a similar business.
- Asset Valuation Method – Most suitable for property owning companies.
- Discount CashFlow Method – Maybe suitable where the business has lots of future potential.
- Industry Valuations – Appropriate where there is a regular turnover and history of similar types of businesses.
In the final analysis, the true value of a business can only be ascertained on the successful
completion of an actual sale between a willing seller and buyer.