Purpose:

For potential sales of your business, buyers put a value for your business or may ask you what would be the price of your venture. The key question in determining the value of the company is what value it generates. Does it have cash flow generations, earnings capability, and business strength? A well-structured business with developed processes run by an experienced team creates a good price tag for the company when it is up for sale.

Management team/founder develops the business and cares for it like raising a baby. Knowing what it is worth is an important when prospective buyers ask for its value.

Various methods can be used to determine the price of the business. Some methods purely focus on its past earnings and earning capability in future whereas some methods are geared towards the value of the asset it has. The fact is no single method is perfect for any business. It will be a good idea to have at least 2 or 3 various methods applied in order to determine the value of the business.