For someone looking to buy a business, it is important to accurately value the venture he or she is interested in. However, the calculation is often the most challenging part of the process, according to The Business Buyer Resource Center.
The first thing for buyers to understand is that business valuations are not an exact science. Rather, the website likens the process to an art. For example, the "asking price" is not necessarily the purchase price. "Quite often (the asking price) does not even remotely represent what the business is truly worth," says the site. Sometimes, a buyer's valuation of the business and the seller's valuation differ, mainly due to the fact that the seller is emotionally attached the business, factoring in his or her years of hard work into the calculation. Several things to consider while calculating the value of a business are asset valuations, the liquidation value and income multiple, writes the website. Business Link suggests also investigating the overall health of a business to calculate its value, including its history, current performance and why the business is being sold. All of these details can affect a business valuation