How to Valuate a Small Business: 8 Simple Steps

How to Valuate a Small Business: 8 Simple Steps

As a small business owner, you likely want to find out how much your business is worth at any given point. Finding out its value may satisfy your curiosity or guide you toward making the right choice in critical business decisions.

However, unlike real estate, finding the value of a small business is rarely straightforward. In this article, we cover how to valuate a small business, looking at some of the most practical methods you can deploy.

Table of Contents

What Is Small Business Valuation?

Small business valuation measures the economic worth of the company. Several approaches to small business valuation exist. Each method objectively assesses the business by analyzing the liquid assets, property, and anything else of economic value that the business owns. The valuation will also consider savings, loans, earnings, insurance plans, intangible assets, and more.

The valuation approach will often come down to the size of your business, the industry in which you operate, and other such factors.

Why Is a Small Business Valuation Necessary?

A small business valuation is necessary if you’re:

  • Looking to acquire another company or complete a merger
  • Thinking of selling your business
  • Seeking funding from new investors and partners
  • Undergoing divorce proceedings
  • Re-evaluating a tax situation
  • Looking to establish new ownership percentages

The reason for scheduling a valuation often influences the approach to the valuation process.

Eight Simple Steps to Small Business Valuation

Below are some key ways to valuate a small business:

1. Using Capitalization of Cash Flow (CCF)

2. Using a Small Business Value Calculator

3. Using Future Maintainable Earnings

4. Using Discounted Cash Flow

5. Using Seller’s Discretionary Earnings

6. Using Rules of Thumb

7. Using a Market-Based Valuation

8. Using a Chartered Business Valuator


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