The value of a business isn’t easy to find at a glance. Valuing a business requires a detailed analysis that considers a range of internal and external factors.  

Here are the key factors that influence business valuation:

• Brand value 
• Brand reputation
• Industry trends
• Growth potential 
• Market conditions
• Competitors 
• Assets and liabilities 
• Earnings and revenue

A business owner can determine the value of their business in four different ways:

• Asset based approach 
• Cash-value analysis 
• Revenue multiplier
• Earnings multiplier 

This information is especially helpful if you’re looking for investors. It will make it easier for you to find an appropriate investment amount and ownership stake that can increase the overall value of your company.

Company valuation is the total economic value of a business and its assets. This information helps stakeholders assess the current worth of a specific department or organization.

All businesses, especially small businesses, will benefit from knowing their overall company valuation alongside the following:

• Gross profit
• Annual earnings 
• Market position
• Market comparison
• Cash flow
• Asset valuation 
• Business value 
• Total value

Here’s a simple formula for company valuation: 

Company valuation = assets – liabilities 

There are, however, six other business valuation methods that provide detailed insights into a company’s value:

• Book value
• Discounted cash flows
• Market capitalization
• Enterprise value
• Present value
• Earnings before interest, taxes, depreciation, and amortization (EBITDA)

EBITDA is an alternative metric for profitability to net income. It can also represent cash profit from a company’s performance when interest, taxes, depreciation, and amortization are excluded.

Excess owner compensation is earned money that can’t be justified by the labor market, effort, or ability. Depending on the way a company is set up, excess compensation may not be limited to the owner. 

In many cases, executives of a company may be replaced to mitigate the risk of excess owner compensation.  

A business’s growth rate is how much its value changes over a period of time. This period may include months, quarters, or years.

A healthy growth rate for a business should be higher than the overall growth rate of the economy or gross domestic product. According to the capital solutions company C2FO, this can vary between 10% and 25% per year.

You’ll need to enter an earnings duration while using the business valuation calculator. Earnings duration is measured in years. In order to provide a consistent picture of your business, it’s best to have at least three years of data available.

Discounted cash flow is a valuation method where future expected cash flows are used to determine the estimated value of an investment. This helps investors evaluate how much money an investment could potentially generate in the future.

Risk assessment is one of the most important factors in business valuation. It can help you measure and rank risk in a consistent way. 

When calculating risk, many businesses use a risk assessment matrix. This tool compares the severity of an outcome against its likelihood. 

A five-by-five matrix produces a scale of 1 to 25. An event with a severity of 5 and a likelihood of 5 would result in the most severe consequences with a rating of 25. This approach allows you to quantify the risk posed by different scenarios.

Here are some common business risk elements you should consider while using the matrix:

• Production processes
• Financing
• Company acquisitions 
• The global economy 
• Competition
• Natural disasters 
• Foreign exchange and interest rates 
• Market fluctuations

Present value represents the current value of a future stream of cash flows or overall sum of money. It’s also based on the concept that the current sum will be worth more than the same sum in the future because there’s an opportunity to invest it and earn a return.

Present value for a company can be calculated using this formula: 

Present value = future value / ( 1 + rate of return)^{number of periods}

Fair market value is the price a product or service is selling for under current economic and market conditions. While fair market value can be easily confused with market value, it’s also determined with these assumptions in mind: 

• The buyer and seller are given a suitable time period to complete the transaction.
• There’s no pressure from the buyer and seller. 
• Both parties consider each other’s best interests in the transaction. 
• Both parties are informed about the product for sale. 

These baseline assumptions will help in creating a fair market value for each product.