How Do I Place a Value on My Business?

The word "value" by itself can be misleading because it can have any number of valid meanings, all dependent upon the intended purpose or process. Choosing the incorrect value based on the wrong type of information can be a very expensive mistake. Understanding the different types of value assigned during a business valuation can help you to make an informed and profitable business decision.

Book Value is a common, and yet often misleading, accounting term used to describe the total assets minus intangible assets, such as patents, and total liabilities listed on the balance sheet.

Control Value is the current value of the controlling shares of a business.

Equity Value is the market value of all assets of a company less liabilities.

Fair Market Value is the price at that a business would fetch in the marketplace, taking into consideration that both prospective buyers and sellers are knowledgeable regarding the asset and that all are behaving in their own best interests, free from undue pressure to trade. A reasonable time frame must be given for the transaction.

Intrinsic Value is the actual value of a company including all aspects such as  tangible and intangible assets. This number may or may not be the same as the Fair Market Value.

Invested Capital Value is the measure that shows how well a company generates cash flow relative to the capital it has invested in itself, and reflects the market value of the whole business. Includes the common equity plus debt plus minority interest minus associate company plus preferred equity minus cash assets.

The Investment Value of a business to a particular investor. Equal to the market value when the investor has the ability to use the property to its fullest potential. For investors with limited resources or vision, the investment value will be lower.

Liquidation Value is the price of a business when it is not given sufficient time to sell on the open market, and is usually lower than the fair market value. This value may be the result of either forced or orderly liquidation, both of which assume that the seller was compelled to sell at a lower price.

The Minority Value is the value which reflects ownership of less than fifty percent and the inability to make final decisions for the business.

Non-controlling Value is the value of non-voting interest, including limited partnerships and non-voting stock.