How much is your business really worth? If you’re preparing to sell or bring in investors, knowing how to value a business is essential. Business valuation goes beyond putting a price tag on what you’ve built. It involves understanding your company’s strengths, market position, and its future potential.
Griffiths, Dreher & Evans, PS, CPAs has a team of CPA Investment Advisors who are also Certified Business Valuation Analysts (CBVAs). With deep expertise in tax strategy, investment management, and business sales, our team helps business owners build accurate valuations and prepare for long-term succession planning.*
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What Is Business Valuation?
Business valuation is the process of determining the economic value of a business. It’s a way to quantify what your company is worth today, based on a range of factors like your assets, revenue, profits, growth potential, and market conditions.
A proper valuation is a tool for decision-making. Business owners use valuations for many reasons beyond just preparing to sell. Mainly, we use business valuations for:
- Exit And Succession Planning
- Purchase And Sale
- SBA Financing
- Financial Planning
- Estate And Tax Planning
- Business-Value Enhancement
Depending on your goals, the valuation process might focus more heavily on your company’s income, assets, or how it compares to similar businesses. And while you can use simple methods to estimate value on your own, getting a credible, defensible valuation usually requires input from a qualified professional, especially if money or legal matters are on the line.
Business Valuation Methodologies
Business valuation depends on context. The “right” value depends on why you’re doing the valuation, what kind of business you run, and how much financial information is available. Are you preparing to sell? Bringing on a partner? Planning your retirement? Each situation may call for a different method or a combination of several.
There are several ways to calculate what your business is worth. Here are the most common methods, grouped into three core approaches:
Asset-Based Valuation
Asset-based methods focus on what your business owns and owes. This approach adds up the value of your assets and subtracts liabilities to determine what the business is worth on paper. There are two ways for this approach:
Book Value
Book value is one of the simplest ways to determine what your business is worth on paper. It’s calculated by subtracting your total liabilities from your total assets, based on your balance sheet. This method works best for asset-heavy businesses like manufacturers or auto repair shops.
The downside with this method is it doesn’t account for intangible assets like brand, customer relationships, or goodwill. And because book value is based on historical costs rather than current market values, it rarely reflects what someone would actually pay for your business today.
Seller’s Discretionary Earnings (SDE)
SDE is a small business owner’s go-to valuation method. It starts with your net profit, then adds back the owner’s salary, perks, and any non-essential expenses, like personal travel, one-time purchases, or charitable donations that aren’t necessary to run the business. The result gives a more accurate picture of how much income the business truly generates for its owner.
Once you’ve calculated your SDE, you apply an industry multiple (typically 2x to 4x) to estimate the business’s value. This method is especially useful when the owner plays a central role in operations, like a local restaurant, salon, or retail shop.
Income-Based Valuation
These methods look at your company’s ability to generate profit. They’re ideal for businesses with reliable earnings and clean financial records. There are two types of income-based valuations:
EBITDA Multiples
For larger or more complex businesses, especially those seeking outside investment, EBITDA is often the preferred valuation metric. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It strips away variables tied to your capital structure, allowing for a cleaner comparison across businesses.
Once you calculate your EBITDA, you apply a multiple based on your industry, growth potential, and risk profile. This method is favored by private equity firms, institutional buyers, and serious investors because it reflects the company’s operating performance without being distorted by how it’s financed.
Discounted Cash Flow (DCF)
DCF is a forward-looking method that estimates what your business is worth today based on the cash it’s expected to generate in the future. Those future cash flows are “discounted” back to their present value using a rate that reflects risk and expected return. In short, DCF tells you what your future income is worth in today’s dollars.
This method is best suited for businesses with stable, predictable cash flow, such as subscription-based companies, SaaS businesses, or established service providers. DCF is highly sensitive to assumptions, so it’s usually conducted by financial professionals with experience in forecasting and valuation modeling.
Market-Based Valuation
This approach compares your business to similar companies that have sold recently or are currently on the market. For market-based valuation, there are two main ways professionals typically approach it:
Comparable Company Analysis (Comps)
Comps are exactly what they sound like. You look at how similar businesses are valued or have sold in your industry. This might mean comparing revenue multiples, EBITDA multiples, or other financial ratios from recent listings, industry reports, or market databases.
Comps give you a reality check: what are buyers actually paying for businesses like yours? This method works well if your industry has reliable market data, such as franchises, agencies, or retail businesses. Just keep in mind, no two businesses are identical in location, brand strength, customer base, and operational efficiency. All of these affect how you compare.
Precedent Transactions
This method uses the sale prices of similar businesses from past mergers or acquisitions to estimate what yours might be worth. These deals often include a control premium, meaning buyers pay more for full ownership and decision-making power.
Precedent transaction analysis is especially useful if you’re selling to a strategic buyer. They want to acquire your market share, technology, or talent. While this method can be powerful, it relies on up-to-date, industry-specific deal data, which is usually gathered and interpreted by advisors with access to M&A databases.
How to Get a Business Valuation
A professional business valuation gives you a defensible number of how much your business is worth, and hiring an experienced business valuator is the best way to do this. At Griffiths, Dreher & Evans, PS, CPAs, our team of CPA Investment Advisors and Certified Business Valuation Analysts (CBVAs) combines expertise in tax strategy, investment management, and business sales.
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Frequently Asked Questions
What is a business appraisal?
A business appraisal is NOT the same as a business valuation. Most times, an appraisal is only a comparison of similar businesses designed to be informal and internal, and doesn’t provide an in-depth look at the subject’s own finances and situation.
A business valuation is formally recognized by USPAP, SBA, and IRS guidelines. It’s commonly used for legal, tax, and investment purposes, is certified by NACVA, and is conducted by certified business valuation analysts.
How much does a business valuation cost?
Our Certified Business Valuation pricing is as follows:
- Up to $3 Million Annual Sales – $2,500
- $3-$10 Million Annual Sales – $3,500
- Over $10 Million Annual Sales – Call
How long does a business valuation take?
For us, a certified business valuation conducted by our analysts takes 2-3 weeks.
Which business valuation method is best?
We use three approaches: asset, income, and market. We offer the option/s that best suit the needs of the client.