Business Valuation Methods: 5 Approaches Every Advisory Pro Must Know
Understanding business valuation is essential for any advisory professional. Whether your client is selling their business, buying a competitor, or just wants to know what they've built, you need to know the core valuation methods. With 880 monthly searches, this is a high-demand skill.
The 5 Core Valuation Methods
1. Discounted Cash Flow (DCF)
What it is: Projects future cash flows and discounts them back to present value.
When to use: Businesses with predictable, growing cash flows. Best for established businesses.
Formula: Value = ฮฃ (Future Cash Flow / (1 + Discount Rate)^n) + Terminal Value
- Project 3-5 years of free cash flow
- Apply a discount rate (typically 15-25% for small businesses)
- Add terminal value for years beyond the projection
2. Revenue/Earnings Multiples
What it is: Value = EBITDA ร Multiple (or Revenue ร Multiple)
When to use: Quick valuation, comparing to industry norms.
| Business Type | Typical EBITDA Multiple |
|---|---|
| Professional services | 3-5x |
| SaaS businesses | 8-15x |
| E-commerce | 3-6x |
| Accounting firms | 1-2x revenue |
| Manufacturing | 4-7x |
3. Asset-Based Valuation
What it is: Value = Total Assets - Total Liabilities (at fair market value).
When to use: Asset-heavy businesses, liquidation scenarios, or as a floor valuation.
4. Market Approach (Comparable Transactions)
What it is: Look at what similar businesses sold for.
When to use: When comparable sales data exists. Best for common business types.
5. Rule of Thumb
What it is: Industry-specific formulas (e.g., "accounting firms sell for 1-1.5x annual revenue").
When to use: Quick estimates, reality checks on other methods.
Valuation Services for Advisory Professionals
Service offerings:
- Informal valuation estimate: $1,000-$3,000 (1-2 page summary)
- Detailed valuation report: $5,000-$15,000 (20+ page analysis)
- Annual valuation update: $2,000-$5,000
- Exit planning package: $10,000-$25,000 (valuation + improvement roadmap + ongoing advisory)
Note: Formal valuations for legal/tax purposes require specific credentials (ABV, CVA). But advisory valuations for strategic planning are valuable and within your scope.
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