According to the National Association of Independent Businesses, these are the three main methods for calculating business value:
1. Asset Approach: This method determines a business’ value by adding up the sum of its parts. The most predictable model, simply add all of your assets and depreciate.
2. Income Approach(es): Generally these methods determine value by calculating the net present value of the benefit stream generated by a business.
3. Market Approach(es): These methods determine value by comparing the soon to be for sale business with others in the same industry, of the same size, and within the same area. The market approach is the most subjective as business owners try to factor in the size of the opportunity, market conditions, and goodwill associated with customers and team members.
Its easy to see how the sharks and the folks pitching on the show never seem to agree on business values!