What Is a Business Valuation Method?
A business valuation method is a framework used to estimate the economic value of a company.
The goal is not simply to calculate how much money a company made last year.
A proper valuation considers questions such as:
- How much cash flow does the business generate?
- How predictable are those earnings?
- How dependent is the company on its owner?
- How quickly is revenue growing?
- How diversified are its customers?
- How strong are its competitive advantages?
- What assets does the business own?
- What liabilities does it have?
- What have similar businesses sold for?
- What risks could affect future earnings?
This is why two businesses with identical revenue can have dramatically different values.
For example:
Business | Revenue | Earnings | Potential Value |
Business A | $2 million | $150,000 | Lower |
Business B | $2 million | $500,000 | Higher |
Business C | $2 million | $500,000 + recurring revenue | Potentially higher |
Revenue is important, but sustainable earnings and risk often have a much greater impact on business value.
The Three Main Business Valuation Approaches
Most business valuation methods fall into three broad categories.
1. Income Approach
The income approach values a business based on its ability to generate future economic benefits.
Common income-based methods include:
- SDE capitalization or multiples
- EBITDA multiples
- Discounted cash flow
- Capitalization of cash flow
The basic idea is:
A business is valuable because of the cash flow it can generate for its owner or investor.
The income approach is particularly useful for profitable operating businesses.
2. Market Approach
The market approach estimates value by looking at comparable businesses.
This can involve:
- Similar businesses currently on the market
- Historical business sales
- Comparable transactions
- Industry valuation multiples
For example, if similar businesses have recently sold for approximately 3–4 times adjusted earnings, that range may provide useful evidence when estimating the value of another business.
The challenge is finding truly comparable companies.
A restaurant in Manhattan is not necessarily comparable to a restaurant in a small rural market simply because both are restaurants.
Location, size, profitability, customer base, lease terms, growth, and risk can all affect value.
3. Asset Approach
The asset approach values the underlying assets of a company after accounting for its liabilities.
A simplified formula is:
Business Value = Fair Market Value of Assets − Liabilities
This approach can be especially relevant for:
- Manufacturing companies
- Equipment-intensive businesses
- Real estate-related companies
- Holding companies
- Businesses with significant inventory
- Companies with limited profitability
- Certain distressed businesses
For many profitable service companies, however, the asset approach may produce a value substantially below what a buyer would actually pay.
Why?
Because the buyer may be purchasing cash-flow-generating operations, not simply equipment and inventory.
The Income Approach
The income approach is one of the most important business valuation approaches for profitable companies.
It focuses on the economic benefits generated by the business.
There are several variations, but the most common concepts for privately held businesses are:
- SDE
- EBITDA
- DCF
- Capitalization of earnings
The method selected often depends on the size, structure, and maturity of the business.
Seller's Discretionary Earnings (SDE)
Seller’s Discretionary Earnings, commonly abbreviated as SDE, is frequently used to value smaller owner-operated businesses.
SDE attempts to measure the total financial benefit available to one owner-operator.
A simplified calculation may look like:
SDE = Net Profit + Owner Compensation + Certain Owner Benefits + Eligible Discretionary Expenses + Other Appropriate Adjustments
The exact calculation should be reviewed carefully because not every expense can simply be added back.
Why SDE Is Used
Small businesses often have expenses that reflect the owner’s personal situation rather than the economic requirements of the business.
For example, an owner might have:
- Personal automobile expenses
- Certain travel expenses
- Owner health insurance
- Excess compensation
- One-time expenses
- Personal subscriptions
- Non-recurring professional fees
Some of these expenses may be legitimate valuation adjustments.
However, adding back expenses simply to increase a valuation is not appropriate.
The adjustment should be supportable and relevant.
SDE Valuation Example
Imagine a small consulting business has:
- Revenue: $900,000
- Reported net profit: $180,000
- Owner compensation: $100,000
- Eligible owner benefits: $20,000
- One-time expense: $10,000
Potential normalized SDE might be approximately:
$180,000 + $100,000 + $20,000 + $10,000 = $310,000
If comparable businesses support an SDE multiple of 3.0x:
$310,000 × 3.0 = $930,000
This does not mean the business automatically sells for $930,000.
The multiple must be supported by the company’s characteristics and market evidence.
When Is SDE Appropriate?
SDE is commonly associated with:
- Small businesses
- Owner-operated businesses
- Local service companies
- Small professional practices
- Home-service businesses
- Small retail businesses
- Small agencies
- Certain restaurants
- Smaller healthcare practices
As businesses become larger and more professionally managed, EBITDA often becomes more useful.
EBITDA Valuation
EBITDA stands for:
Earnings Before Interest, Taxes, Depreciation, and Amortization.
EBITDA is widely used when valuing larger or more professionally managed businesses.
A simplified formula is:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
However, valuation typically requires normalized EBITDA, meaning the earnings figure is adjusted for unusual or non-recurring items where appropriate.
Why EBITDA Matters
EBITDA attempts to measure the operating earnings of a business before certain financing, tax, and non-cash accounting considerations.
This can make it useful for comparing businesses with different:
- Debt structures
- Tax situations
- Depreciation policies
- Capital structures
For example, two companies could have similar operating performance but different net income because one has significantly more debt.
EBITDA can help make the operating comparison more meaningful.
EBITDA Valuation Example
Suppose a manufacturing company generates:
- Revenue: $8 million
- Normalized EBITDA: $1 million
If comparable businesses support a valuation multiple of 5.0x EBITDA:
$1,000,000 × 5.0 = $5,000,000
The resulting $5 million represents an estimate of enterprise value, not necessarily the amount the owner receives at closing.
Debt, cash, working capital, transaction structure, and other adjustments can affect equity value.
Discounted Cash Flow (DCF)
The Discounted Cash Flow method, or DCF, estimates the value of a business based on its expected future cash flows.
The concept is straightforward:
Future cash is worth less today because of the time value of money and the risk associated with receiving it.
A DCF valuation generally involves:
- Forecasting future cash flows.
- Selecting an appropriate discount rate.
- Estimating terminal value.
- Discounting future cash flows back to present value.
- Adjusting from enterprise value to equity value where appropriate.
Simple DCF Example
Suppose a company is expected to generate:
Year | Expected Cash Flow |
Year 1 | $400,000 |
Year 2 | $450,000 |
Year 3 | $500,000 |
Year 4 | $550,000 |
Year 5 | $600,000 |
A DCF model discounts these future cash flows back to today’s value.
The model also generally includes a terminal value representing the value of cash flows beyond the explicit forecast period.
DCF can be powerful, but it is highly sensitive to assumptions.
Small changes in:
- Growth rate
- Discount rate
- Profit margins
- Capital expenditures
- Working capital
- Terminal growth
can materially change the estimated value.
When Is DCF Useful?
DCF can be especially useful for businesses with:
- Predictable cash flows
- Meaningful growth expectations
- Long-term financial forecasts
- Established operating models
- Recurring revenue
- Strong visibility into future performance
It can be less reliable when a company has highly unpredictable earnings or when future forecasts are speculative.
The Market Approach
The market approach asks a simple question:
What are similar businesses worth based on actual market evidence?
This makes the market approach particularly useful because it reflects what buyers and investors have actually paid.
Market-based valuation can involve:
- Comparable company analysis
- Comparable transaction analysis
- Industry multiples
- Revenue multiples
- EBITDA multiples
- SDE multiples
The challenge is selecting appropriate comparables.
Comparable Transactions
Comparable transactions are sales of businesses that are sufficiently similar to the company being valued.
For example, suppose you are valuing a $3 million revenue HVAC company.
Useful comparable transactions might involve HVAC businesses with similar:
- Revenue
- EBITDA or SDE
- Geography
- Customer mix
- Service mix
- Growth
- Employee count
- Recurring maintenance revenue
- Owner involvement
A large national HVAC company may not be a useful comparable simply because it operates in the same industry.
What Makes a Good Comparable?
A strong comparable should ideally have similarities in:
Industry
A software company should generally be compared with other software businesses rather than unrelated companies.
Size
A $500,000 revenue company and a $50 million company may operate under very different economics.
Profitability
Businesses with similar revenue but different margins can have dramatically different values.
Geography
Location can affect:
- Labor costs
- Customer demand
- Competition
- Real estate
- Operating expenses
- Buyer demand
Growth
A rapidly growing company may justify a different valuation multiple than a stagnant business.
Risk
A company with recurring customers and diversified revenue may command a higher multiple than one dependent on a handful of customers.
The Asset Approach
The asset approach focuses on what the company owns.
A simplified calculation is:
Net Asset Value = Fair Market Value of Assets − Liabilities
Assets may include:
- Cash
- Accounts receivable
- Inventory
- Equipment
- Machinery
- Vehicles
- Real estate
- Intellectual property
- Other tangible or identifiable assets
The assets should be considered at appropriate values rather than blindly using historical accounting values.
Adjusted Net Asset Value
Adjusted Net Asset Value attempts to determine the fair value of a company’s assets after making appropriate adjustments.
For example, equipment purchased several years ago may have a low book value but could still have significant market value.
Conversely, obsolete inventory may have a book value that exceeds what a buyer would realistically pay.
Therefore:
Book Value ≠ Fair Market Value
This distinction is important when using an asset-based valuation.
When Is the Asset Approach Most Useful?
The asset approach may be particularly relevant for:
- Asset-heavy businesses
- Manufacturing companies
- Equipment rental companies
- Certain construction companies
- Holding companies
- Real estate-related entities
- Businesses with substantial tangible assets
- Distressed companies
- Companies with weak or negative earnings
For a consulting business with $1 million in annual revenue but few physical assets, the asset approach alone may substantially understate the economic value of the business.
SDE vs. EBITDA
One of the most common questions business owners have is:
Should I use SDE or EBITDA?
The answer depends largely on the size and management structure of the company.
Factor | SDE | EBITDA |
Typical use | Smaller businesses | Larger businesses |
Owner-operated | Common | Less important |
Owner compensation | Usually added back | Usually normalized |
Management structure | Often owner dependent | More institutional |
Typical buyer | Individual buyer | Strategic/financial buyer |
Valuation basis | Owner benefit | Operating earnings |
Example
A landscaping company generating $700,000 in revenue and requiring the owner to manage daily operations may be better analyzed using SDE.
A $15 million landscaping company with multiple managers, standardized systems, and minimal owner involvement may be more appropriately analyzed using EBITDA.
There is no universal revenue threshold where the method automatically changes.
The economics of the business matter more than a single number.
Business Valuation Multiples
A business valuation multiple is a ratio used to estimate value based on a financial metric.
Common multiples include:
- SDE multiple
- EBITDA multiple
- Revenue multiple
- Seller’s Discretionary Earnings multiple
- Enterprise Value / EBITDA
- Enterprise Value / Revenue
A simplified formula is:
Business Value = Normalized Financial Metric × Valuation Multiple
For example:
$300,000 SDE × 3.0 = $900,000
Or:
$1,000,000 EBITDA × 5.0 = $5,000,000
The difficult part is determining the appropriate multiple.
What Factors Affect a Valuation Multiple?
A business does not automatically deserve the industry average multiple.
Several factors can push the multiple higher or lower.
Recurring Revenue
Businesses with recurring or contracted revenue may be more predictable.
Examples include:
- SaaS subscriptions
- Maintenance contracts
- Memberships
- Retainers
- Recurring professional services
Predictability can increase buyer confidence.
Revenue Growth
Growing businesses may command stronger multiples when growth is:
- Sustainable
- Profitable
- Supported by market demand
- Not dependent on unrealistic assumptions
Rapid growth without profitability is not automatically valuable.
Customer Concentration
If one customer represents 40% of revenue, a buyer may view the business as significantly riskier.
A company with hundreds of diversified customers may receive a stronger valuation.
Owner Dependence
If the owner personally handles:
- Sales
- Customer relationships
- Operations
- Estimating
- Technical work
- Vendor relationships
the business may be difficult to transfer.
Reducing owner dependence can increase business value.
Management Team
A capable management team can make a business easier to acquire and operate.
Businesses that can function without the owner are often more attractive to buyers.
Competitive Advantages
A company may command a stronger multiple when it has:
- Strong brand recognition
- Proprietary technology
- Exclusive agreements
- High customer retention
- Specialized expertise
- Barriers to entry
- Strong reputation
Financial Quality
Buyers want confidence that reported earnings are accurate.
Clean financial statements can make due diligence easier and reduce perceived risk.
Business Valuation Examples
Let’s look at several hypothetical businesses.
Example 1: Small Service Business
Revenue: $800,000
Normalized SDE: $250,000
Illustrative SDE multiple: 3.0x
Estimated value = $250,000 × 3.0 = $750,000
The actual multiple could be higher or lower depending on risk, growth, owner dependence, customer concentration, location, and other factors.
Example 2: Professional Services Business
Revenue: $2.5 million
Normalized EBITDA: $500,000
Illustrative EBITDA multiple: 4.5x
Estimated enterprise value = $500,000 × 4.5 = $2.25 million
The final equity value could differ after accounting for debt, cash, working capital, and transaction-specific adjustments.
Example 3: Manufacturing Company
Revenue: $10 million
Normalized EBITDA: $1.5 million
Illustrative EBITDA multiple: 5.5x
Estimated enterprise value = $1.5 million × 5.5 = $8.25 million
The asset approach may also provide useful supporting information because the company may own substantial machinery, equipment, and inventory.
Business Valuation Methods for Different Industries
Different industries often require different valuation considerations.
Service Businesses
Service companies are often evaluated using:
- SDE
- EBITDA
- Comparable transactions
Important factors include:
- Customer retention
- Owner dependence
- Labor requirements
- Recurring revenue
- Reputation
- Geographic concentration
Professional Services
Professional practices may require analysis of:
- SDE
- EBITDA
- Client retention
- Recurring engagements
- Partner dependence
- Professional licenses
- Transferability of client relationships
Manufacturing
Manufacturing companies may require a combination of:
- EBITDA
- Comparable transactions
- Asset approach
Important considerations include:
- Machinery
- Capacity
- Inventory
- Customer concentration
- Supply chain
- Capital expenditures
- Facility requirements
Technology Businesses
Technology companies may be analyzed using:
- EBITDA
- Revenue multiples
- DCF
- Comparable transactions
Important factors include:
- Recurring revenue
- Growth
- Customer retention
- Intellectual property
- Software ownership
- Gross margins
- Scalability
Restaurants
Restaurants may commonly be evaluated using:
- SDE
- EBITDA
- Comparable sales
Important considerations include:
- Location
- Lease terms
- Revenue trends
- Labor costs
- Food costs
- Owner involvement
- Brand strength
- Transferability
Business Valuation in New York
Business valuation in New York requires attention to both the company’s financial performance and the characteristics of its local market.
New York contains an unusually diverse business environment, ranging from small owner-operated companies to sophisticated middle-market businesses.
Businesses may include:
- Professional services
- Healthcare
- Construction
- Restaurants
- Manufacturing
- Technology
- Retail
- Financial services
- Home services
- Consulting
- Distribution
The valuation method should reflect the economics of the particular company rather than simply applying a generic New York multiple.
For a small New York service company, SDE may be appropriate.
For a larger established company, EBITDA and comparable transactions may become more relevant.
For an asset-heavy company, the asset approach may provide important supporting evidence.
Business Valuation in Manhattan
Manhattan businesses can have unique valuation considerations because of the market’s high operating costs, competitive environment, customer density, commercial rents, labor market, and buyer demand.
For example, two businesses with similar financial statements may still have different risk profiles depending on:
- Lease obligations
- Location
- Customer demographics
- Employee costs
- Local competition
- Brand reputation
- Customer concentration
A Manhattan professional services company may have relatively few physical assets but significant enterprise value because of its recurring clients, reputation, intellectual property, and earnings.
On the other hand, a retail or restaurant business may require careful analysis of lease economics and location.
Business Valuation in Westchester County
Businesses in Westchester County can range from professional practices and contractors to healthcare providers, manufacturers, retailers, and family-owned service companies.
For these businesses, valuation analysis may need to consider:
- Local customer concentration
- Owner involvement
- Labor availability
- Commercial property
- Recurring contracts
- Business reputation
- Competitive environment
- Proximity to major markets
A company serving both Westchester County and the broader New York metropolitan area may have a different market profile from a business dependent entirely on one small local customer base.
Business Valuation in Fairfield County
Fairfield County, Connecticut is an important target market for businesses serving the broader New York metropolitan region.
Because Fairfield County is in Connecticut, rather than New York, it should be treated as a separate geographic market in your site’s content architecture.
Businesses in the area may include:
- Professional services
- Healthcare
- Financial services
- Contractors
- Restaurants
- Technology
- Consulting
- Retail
- Family-owned businesses
Valuation should account for the individual company’s earnings, growth, customer base, competitive position, and transferability.
Business Valuation in New Haven
New Haven, Connecticut has a diverse business environment that includes professional services, healthcare-related businesses, restaurants, contractors, technology companies, and other locally owned businesses.
A local business valuation should consider both the company’s financial performance and the characteristics of its market.
Important factors may include:
- Revenue stability
- Customer concentration
- Owner dependence
- Local competition
- Recurring revenue
- Employee structure
- Physical assets
- Growth potential
Businesses in New Haven should not automatically be valued using the same assumptions as businesses in Manhattan.
The appropriate comparable companies, risk profile, and buyer pool may be different.
How to Choose the Right Business Valuation Method
There is no single method that is automatically correct.
A strong valuation often uses multiple methods as cross-checks.
For example:
Small owner-operated business
Primary:
SDE multiple
Supporting:
Comparable transactions
Established middle-market company
Primary:
EBITDA multiple
Supporting:
Comparable transactions
Potential additional method:
DCF
Asset-heavy company
Primary:
EBITDA or comparable transactions
Supporting:
Adjusted net asset value
High-growth company
Potential methods:
- DCF
- Revenue multiples
- EBITDA multiples
- Comparable transactions
The key is understanding what drives economic value.
Why You Should Not Rely on One Valuation Method
Suppose a business has:
- $2 million revenue
- $400,000 SDE
- $300,000 EBITDA
- $1 million of tangible assets
Different approaches may produce different results.
That does not necessarily mean one method is wrong.
Each method is answering a slightly different question.
The income approach asks:
What is the value of the business based on its earnings?
The market approach asks:
What are similar businesses selling for?
The asset approach asks:
What are the underlying assets worth after liabilities?
A well-reasoned valuation considers these perspectives together.
Common Business Valuation Mistakes
Mistake 1: Using Revenue as the Main Measure of Value
Two companies can generate identical revenue while producing dramatically different profits.
Revenue alone does not tell you how much economic benefit the business generates.
Mistake 2: Choosing a Multiple Without Evidence
A business owner may find an online article saying companies in their industry sell for 5x earnings.
That does not automatically mean their company is worth 5x earnings.
The appropriate multiple depends on the specific business.
Mistake 3: Adding Back Every Expense
Not every business expense is a legitimate add-back.
Adjustments should be reasonable, documented, and supportable.
Mistake 4: Ignoring Owner Dependence
If the owner is the salesperson, manager, technician, estimator, and primary customer relationship, a buyer may discount the business.
Mistake 5: Ignoring Customer Concentration
A business dependent on one or two customers can carry substantially more risk than a diversified company.
Mistake 6: Confusing Enterprise Value With Equity Value
Enterprise value and the amount ultimately received by the owner are not necessarily the same.
Debt, excess cash, working capital, and other transaction adjustments can affect equity value.
Mistake 7: Ignoring Working Capital
A buyer may expect a certain level of working capital to remain in the business after closing.
This can affect the economics of a transaction.
Mistake 8: Using Outdated Financial Information
A valuation based on financial results from several years ago may not reflect the company’s current performance.
Use current and normalized financial information whenever possible.
How to Improve Your Business Value
Business owners preparing for a sale should not focus only on increasing revenue.
The goal is to increase sustainable, transferable, low-risk earnings.
Consider improving:
1. Recurring Revenue
Develop contracts, subscriptions, maintenance agreements, memberships, or other repeat-revenue models where appropriate.
2. Customer Diversification
Reduce dependence on a small number of customers.
3. Management
Build a management structure that allows the business to operate without the owner.
4. Financial Reporting
Maintain clean and organized financial records.
5. Operating Systems
Document:
- Sales processes
- Customer onboarding
- Operations
- Hiring
- Training
- Vendor relationships
A transferable business is generally easier for a buyer to understand and operate.
6. Profitability
Revenue growth without improving profitability does not necessarily increase value.
Look for sustainable improvements in:
- Gross margin
- Operating margin
- Labor efficiency
- Pricing
- Customer retention
- Overhead
When Should You Get a Business Valuation?
You do not have to wait until you are ready to sell.
A valuation can be useful when:
- Considering a sale
- Planning an exit
- Buying another business
- Bringing in a partner
- Buying out a shareholder
- Planning retirement
- Evaluating growth strategies
- Seeking financing
- Preparing for succession
- Understanding personal net worth
- Making strategic decisions
Many owners benefit from understanding their company’s value years before an eventual sale.
That gives them time to improve the factors that influence the valuation.
Use a Business Valuation Calculator
A business valuation calculator can be a useful starting point for estimating what a company may be worth.
However, an online calculator should generally be treated as an estimate rather than a formal appraisal.
The quality of the estimate depends on the information entered.
Useful information may include:
- Annual revenue
- Net income
- SDE
- EBITDA
- Owner compensation
- Business industry
- Years in operation
- Growth rate
- Customer concentration
- Recurring revenue
- Number of employees
- Owner involvement
- Assets
- Liabilities
The more accurate the underlying information, the more useful the estimate can be.
Start Your Estimate
Use the Free Business Valuation Calculator
Find out what your business may be worth based on its financial performance and business characteristics.
What Information Is Needed for a Business Valuation?
A preliminary valuation generally starts with financial and operational information.
Financial Information
Depending on the business, this may include:
- Profit and loss statements
- Balance sheets
- Tax returns
- Revenue history
- Owner compensation
- Debt
- Capital expenditures
- Extraordinary expenses
Operational Information
You may also need:
- Number of employees
- Customer concentration
- Recurring revenue
- Major contracts
- Owner responsibilities
- Management structure
- Location
- Industry
- Competitive advantages
Transaction Information
If the business is being prepared for sale, additional information may include:
- Asking price
- Proposed transaction structure
- Included assets
- Real estate
- Working capital
- Existing debt
Frequently Asked Questions
The three major approaches are the income approach, market approach, and asset approach.
The income approach focuses on earnings and future cash flow. The market approach uses comparable companies or transactions. The asset approach considers the value of assets minus liabilities.
For many small owner-operated businesses, an SDE-based valuation can be useful.
However, the appropriate method depends on the company’s financial performance, size, industry, owner involvement, risk, and buyer market.
Neither is universally better.
SDE is commonly used for smaller owner-operated companies, while EBITDA is often more useful for larger professionally managed businesses.
The appropriate metric depends on how the business operates and how potential buyers would analyze it.
A business valuation calculator typically uses financial information such as revenue, earnings, SDE or EBITDA, industry, and other business characteristics to generate an estimated value range.
It is useful for an initial estimate but should not automatically be treated as a formal appraisal.
Discounted Cash Flow valuation estimates a company’s value by forecasting future cash flows and discounting them back to their present value.
DCF can be useful for companies with predictable future cash flows but is sensitive to assumptions about growth and risk.
Comparable transactions are completed sales of businesses that share meaningful characteristics with the company being valued.
They can provide valuable market evidence for determining an appropriate valuation range.
A valuation multiple is a ratio used to estimate business value from a financial metric.
For example:
Business Value = EBITDA × EBITDA Multiple
If normalized EBITDA is $500,000 and the applicable multiple is 4x:
$500,000 × 4 = $2 million
The multiple should be supported by the characteristics and market evidence for the business.
Revenue is important, but revenue alone usually does not determine business value.
Profitability, cash flow, growth, risk, customer concentration, recurring revenue, owner dependence, and other factors can have a major impact.
Absolutely.
Two companies in the same industry can have very different valuations because of differences in:
- Profitability
- Growth
- Customer concentration
- Recurring revenue
- Owner dependence
- Location
- Management
- Brand
- Risk
Yes.
Location can affect customer demand, labor costs, rent, competition, buyer demand, and operating conditions.
This is particularly important when comparing businesses across markets such as Manhattan, Westchester County, Fairfield County, and New Haven.
Business owners can potentially increase value by improving sustainable earnings, reducing owner dependence, diversifying customers, increasing recurring revenue, documenting systems, improving financial reporting, and reducing operational risk.
Not necessarily.
An online valuation calculator generally provides an estimate based on the information entered and the assumptions used.
A formal business appraisal may involve significantly more detailed analysis and may be performed for a specific purpose such as litigation, tax, financing, or other professional requirements.
Final Thoughts on Business Valuation Methods
Understanding business valuation methods is essential if you want to know what your company may be worth.
The three primary approaches are:
- Income approach
- Market approach
- Asset approach
Within these approaches, methods such as SDE, EBITDA, DCF, comparable transactions, and adjusted net asset value can help establish a reasonable valuation range.
The most important point is that no single formula determines the value of every business.
A small owner-operated company may be best understood through SDE and comparable transactions.
A larger professionally managed company may be analyzed primarily using EBITDA and market multiples.
A company with predictable future cash flows may benefit from a DCF analysis.
An asset-heavy company may require significant consideration of its underlying assets.
And in many situations, the strongest analysis comes from using several approaches together rather than relying on one number.
If you’re a business owner in New York, Manhattan, Westchester County, Fairfield County, or New Haven, understanding these methods can help you make better decisions before selling, buying, financing, or planning your eventual exit.
Find Out What Your Business May Be Worth
Don’t rely on a generic industry number.
Start with your own company’s financial information.
Use Our Free Business Valuation Calculator →
Or explore our broader Business Valuation resources to understand the factors that can influence your company’s value.