Valuing an Existing Business: What You Must Know Skip to main content

Valuing an Existing Business: What You Must Know

Valuing an Existing Business: What You Must Know

Business valuation using EBITDA and cash flow

Whether you're buying, selling, or planning growth, understanding how to value an existing business is essential. This guide outlines methods, metrics, and mistakes to avoid.

✅ 1. Purpose of Business Valuation

  • Buying or selling a business
  • Securing investment or business loans
  • Strategic or exit planning
  • Legal, tax, or estate planning purposes

✅ 2. Understanding Different Types of Business Value

  • Fair Market Value: Agreed price between buyer and seller
  • Investment Value: Value to a specific investor
  • Liquidation Value: Asset sale under pressure
  • Book Value: Net worth from balance sheet

✅ 3. Common Valuation Methods

  • Asset-Based: Adjusted book value & liquidation
  • Income-Based: Discounted Cash Flow (DCF) & Earnings Capitalization
  • Market-Based: Comparable sales & revenue multiples

✅ 4. Financial Metrics to Evaluate

  • EBITDA
  • Profit margins
  • Cash flow & working capital
  • Return on Investment (ROI)

✅ 5. Non-Financial Factors

  • Brand value & reputation
  • Customer base & loyalty
  • Location & lease terms
  • Industry outlook

✅ 6. Due Diligence Checklist

  • 3–5 years of financials
  • Tax returns
  • Contracts & liabilities
  • Customer & employee records

✅ 7. Mistakes to Avoid

  • Overreliance on revenue multiples
  • Ignoring liabilities
  • Not adjusting owner’s salary
  • Skipping valuation professionals

✅ 8. Who Should Perform a Valuation?

  • Certified Valuation Analysts (CVA, ABV, CBA)
  • Experienced accountants or CPAs
  • Business brokers

Final Thoughts

Valuation isn't one-size-fits-all. Consider financial, market, and operational factors together. For more insights, explore our Business Valuation archives.

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