There’s no single formula to value a business. But most valuations follow three core approaches. Each one offers a different lens, and the right method depends on what your business looks like, what stage it’s at, and why you need the valuation in the first place. Here’s what they are – and when each is used.
1. Market approach
This compares your business to similar ones that have recently sold. If they sold for 6× EBITDA, you might be in the same range – adjusted for size, growth and risk.
It’s the most intuitive method, but it only works when good data exists. If your business operates in a niche sector or if deal data is limited, finding meaningful comparables can be tricky. Even where comparables exist, professional valuers will often adjust the multiple to reflect your specific risk profile, control premium, or size discount.
2. Income approach
This method looks at your future earnings – usually by forecasting cash flow and discounting it back to today’s value. It’s sometimes known as discounted cash flow (DCF).
This approach is especially useful for businesses with a clear growth plan, recurring revenue, or long-term contracts. It captures value based on future performance, not just historic results. The challenge is getting the forecasts and discount rate right – too optimistic, and you risk overstating the business’s worth; too conservative, and you may miss value.
In some cases, a simplified version known as capitalisation of earnings is used. This involves applying a multiple to a single year’s profit, often when the business has a stable and predictable earnings base.
3. Cost or asset-based approach
This adds up the market value of your assets and subtracts liabilities. It’s often used when the business is asset-heavy (e.g. property, equipment, stock) or when profitability is low.
This approach answers the question: what would it cost to build or replace the business from scratch? For trading businesses, this usually sets the floor value, because intangible value – brand, relationships, IP – is often not fully captured.
Choosing the right method
Professional valuations often blend approaches to cross-check the result. For example, a high-growth SaaS company might be valued using both DCF and market multiples, while an investment company might be valued mainly on net assets.
Crucially, the context matters. A valuation for divorce or tax has different requirements to one for a funding round or sale. That’s why expert input isn’t just about the number – it’s about choosing the right basis, method, and adjustments to fit the situation.
For a deeper dive into valuation methods and when to use them, read our full guide – or speak to a Wilson Partners adviser to get a tailored view of your business’s value.
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