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How do you determine the value of your business?

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Quick Answer

To determine the value of your business, use the income valuation approach, which assesses your business' revenue, or apply the asset-based approach, which sums up the value of your entire assets, recommends Nolo. Alternatively, use industry formulas, or compare the sale prices of recently sold businesses similar to yours.

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When planning to sell your business, the income valuation approach helps you evaluate the earnings of your business, granted the buyer wants a type of business that serves as an investment competing with real estate, bonds or stocks, explains Nolo. The focus is on the type of return the buyer can possibly get.

The asset-based approach considers both tangible assets and intangible assets, such as copyrights and trademarks, states Nolo. It uses the resale value of your assets instead of the cost of replacing them. You may also consider formulas commonly used in your specific industry, such as the average of three times your revenue over three years or two times your company's book value.

The low end of your business value is likely higher than the liquidation value of the company's assets, while the high end possibly depends on income projections, according to Nolo. The terms of payment, market demand, types of buyers and your own needs are other factors that can affect the pricing of your business.

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