07: Valuation

Valuation is key for companies buying or selling a business, and you should seek professional advice. Various valuation methods can be used. Businesses with a record of sustainable profits are often valued at a multiple of earnings, and mature cash-generating businesses can be valued in a similar way but based on cash flow. Asset valuation is another method for businesses with substantial assets.

As most businesses do not have significant tangible assets, however, the main item being valued is future profitability. Broadly speaking, valuation comes down to how much recurring revenue is being generated and how profitable this is, but other relevant factors include the current market climate and demand for the type of business being sold.