How do I determine the value of a business?

This can be, but does not have to be, the most challenging part of the process of buying a business. The most important question to ask yourself is what the business is worth to you. The seller is going to have a somewhat skewed outlook on the overall price of his/her business due to the years of time and effort he/she has put into building it and the amount of sentimental value the business now holds for him/her. There are several different methods that a buyer can use to determine his/her own opinion of the value of a business. The first method is asset valuations. This method involves adding up the value of all the assets a business has, and, therefore, coming up with an fitting price. Another method a buyer can use is called liquidation value. This method involves a hypothetical situation and asks a question. If the business was forced to sell all their assets in less than 12 months, how much would those assets be worth? The answer to the question determines the value. Yet another method is called income capitalization. This method looks at the business’s history and, along with assumptions, calculates its future income. These methods are a few ways for the buyer to do some research of his/her own to come up with a price that he/she thinks the business is worth. None of these methods are 100% accurate, and a buyer should not base his/her decision on buying a business on one method alone. Use of two or more methods is suggested.