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Valuing The Business
Business valuation is a mix of art and science. The bottom line is, of course, that a business is worth what a buyer will pay for it. However, there are ways of estimating a fair price. Several of those methods are described in this section. There are variations of these methods and there are other methods that apply to specific situations. It is not uncommon to value a business by a number of different methods and use an average (or more likely a weighted average that gives more weight to some methods than to others) of the various methods used.
Note that there are a number of reasons for valuing a business, other than buying or selling it. Businesses are valued for estate and tax purposes, divorce settlements, and for raising capital. In keeping with the purpose of this manual, all valuation discussion here will be limited to valuing for buying and selling.
We have created a web based valuation software program that does a valuation based on the excess earnings method that is available at www.freevaluationsonline.com. We believe that in most cases this is the appropriate method for valuing small to mid-sized businesses. We also have created online software for sophisticated business owners and financial professionals available at EzValuation.com.
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