Market comparable business valuation

The key assumption behind the market comparable valuation methods is that the value of a business is revealed once you see what similar companies sell for. If a piece of business equipment has been sold in, say, the last six months for $350,000 then it is likely that we can get about the same if we were to put a similar machine up for sale today.

Of course, the actual selling price may vary based on the equipment condition and any unique features that make it particularly suitable for the buyer.

Note that we are not concerned about the cost of replacing the equipment. Nor are we interested in the potential income stream it can produce. We just check the market prices for similar machines. The idea is that the business sellers and buyers out there have already priced all this information in.

So business value is what someone is willing to pay for it. In this sense, your business valuation is a guess about what the business is worth to someone else. The real proof of any business appraisal is the actual price the business sells for.

Since no two businesses are quite the same, it is very likely that a given business selling price will be different from what the market comparison would suggest. Any company is a complex set of business assets and the unique way they are managed to produce income for the owners.

See Valuation Tour