Valuation Potential

There are more than 10 ways to value your business. Each method will provide you with a slightly different answer. One of the more common methods that business brokers use is to value your business is based on how much cash the business will generate in the long term. Business brokers then discount this cash to today's value. This allows Business brokers to gain a clear understanding of the value of the business in todays value.

With online calculators assumptions need to be made in order to generate a valuation figure. Given the value of your business profit, we then need to understand how much actual cash you have available in the business. Probably the largest player to impact upon this level of cash is the tax man. The tax man unfortunately wants a significant slice of your profits. When your business therefore earns a profit of $100,000 you effectively only end up with a lesser amount in the bank, as cash after you have paid your tax bill.

The other major assumption that needs to be made, is what we call the "weighted cost of capital". This might be more simply referred to as the risk of lending money to the business. If your business is a low risk proposition and your future income is guaranteed then this figure would be down at around 4%. However for most small businesses there is a high degree of risk that earnings will remain constant over the next 10 years, so we apply a risk factor of 15-20% or even greater for higher risk enterprises.

With online business valuation calculator, the model calculates your sales and profits over the next 10 years and then discounts this by the "weighted cost of capital" rate.

There are many more factors that could be taken into account including capital injections and expenditures, depreciation and even whether the owners of the business are being paid a fair salary.

Online Business Valuation calcutors can provide an indicative valuation of a business by using discounted cash flow and weighted cost of capital.

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