How business valuation works: methods, evidence and what your company is actually worth
Multiples, discounted cash flows and asset approaches — how professionals reconcile them into a defensible range, and why "what a buyer will pay" starts with what your records can prove.
Why valuations differ so much
Ask three people what a business is worth and you will hear three numbers — because value depends on normalised earnings, assumptions about the future, and what the records can evidence. A professional valuation is not a bigger number; it is a defensible one: methods disclosed, assumptions stated, conclusions that survive a skeptical reader.
The three method families
- Earnings approaches: a multiple applied to normalised, sustainable earnings — the workhorse for trading businesses - Discounted cash flow: tomorrow's cash flows priced into today — powerful where the future differs from the past, demanding on assumptions - Asset approaches: what the balance sheet is worth piece by piece — the floor, and the lead method for holding and property entities A credible valuation runs more than one and explains the reconciliation.
Normalisation — where the real work happens
Reported profit is rarely sustainable profit. Owner compensation above or below market, one-off events, related-party pricing, unrecorded liabilities — each is adjusted before any multiple is applied. This is why valuations built on unreviewed accounts mislead: the method was fine; the input was fiction.
What moves value before a sale
Eighteen months of preparation reliably outperforms negotiation: clean reconciled records, contracts documented, customer concentration reduced, management that runs without the owner, and compliance certificates ready. Buyers pay for transferable, evidenced cash flow — every gap they find prices as risk, against you.
When you need a valuation
Raising capital, admitting or exiting a partner, shareholder disputes, succession, and sale preparation. In each case the valuation is the negotiation's foundation document — the side that brings the defensible number frames the conversation.
General information only; not legal, tax, audit, investment or other regulated advice. Requirements and outcomes depend on the facts. A written engagement defines the actual scope, responsibilities, timing and fees.