Knowing how much a business is worth is important both to investors and business owners.

This is essential especially when one wants to sell their business. This will help in placing a price tag on a business.

The following approaches can be used to measure how much a business is worth;

Assets

The business’ total assets minus total liabilities can be used to measure its worth. Assets include both liquid and capital assets. They vary from machinery and equipment, furniture, cash etc.

Virtual assets such as software and applications are exclusive in valuing the business’ assets.

Calculating total assets is easy; you simply sum up cost of the total tangible assets then subtract the total business liabilities at that specific moment. All money the business owes outsiders no matter how little should be included in total liabilities.

Assets are more likely used to value large sized established companies and industries.

Cash flow analysis

This refers to the amount of profits generated by the business both in the present and the amount of profits the business is more likely to generate in future.

Hard fixed assets are important in calculating how much profit the business is more likely to generate in future.

A business owner can calculate the total cash flow of the business to know how much the business is worth.

Value of comparable companies/business

An alternative method of knowing how much a business is worth is by checking and comparing other businesses which are exactly similar to yours. If the business has the same size and total assets as your business then both business are more likely to be worth the same.

However, this assumption may not always be 100% accurate.