What Is the Value of Your Business?
In 2025, more than 9,500 small businesses were sold in the U.S., with a median sale price of $350,000, up 2% from the prior year.¹
As a business owner, understanding the value of your business matters for more than just a potential sale. It plays a role in business succession planning, estate tax estimates, and qualifying for a loan.
Business Valuation Methods
Business valuation methods range from simple to highly complex. Below are three common approaches to valuing a business.
1. Asset-Based Valuation
This method calculates the value of all tangible and intangible assets held by the business.
- It does not account for the business’s future earning potential.
- Because of this, a pure asset-based valuation is typically used for companies that are bankrupt or being liquidated.
2. Earnings-Based Valuation
This approach determines a business’s value by applying a multiple to normalized earnings — earnings adjusted to exclude owner’s compensation and related expenses.
- The multiplier used can vary significantly depending on the industry and the outlook for the business.
3. Market-Based Valuation
This method compares the business to recent sales of similar companies in the same industry or market.
Factors That Go Beyond the Formula
Business valuation techniques aren’t purely formulaic. Several other factors can influence the value of a business:
- Going concern value — An operating business typically carries more value than a comparable start-up.
- Ownership percentage — Purchasing a minority share with limited control may result in a discount to the business’s overall value.
- Business prospects — A company in a leading-edge industry will often command a higher premium than one operating in a mature, slower-growth market.
Valuing a small business isn’t an exact science. Some factors are debatable, such as the remaining life expectancy of equipment, while others are more subjective, such as the value of the company’s reputation.
The Role of a Willing Seller and Buyer
The true value of any business can only be determined when a willing seller and a willing buyer agree on a price. Because of this, any business valuation exercise ultimately produces a rough estimate rather than an exact figure.
Getting Professional Guidance
Before moving forward with a business valuation, whether for a sale, business valuation for succession planning, or another purpose, consider working with legal and tax professionals familiar with the process. A qualified business appraiser can also provide valuable insight specific to your industry and situation.
Frequently Asked Questions
What are the main business valuation methods?
The three primary approaches are asset-based valuation, earnings-based valuation, and market-based valuation. Each looks at a business’s worth from a different angle, and the right method often depends on the purpose of the valuation and the nature of the business.
How do you value a small business?
Small business valuation typically starts with one or more of the core methods — asset-based, earnings-based, or market-based — and then factors in elements like going concern value, ownership percentage, and the business’s growth prospects.
Why is business valuation important for succession planning?
Knowing the value of a business helps owners plan an accurate and fair transition, whether ownership is passing to a family member, a partner, or an outside buyer. It also supports estate tax planning and other financial decisions tied to the transfer of the business.
Is business valuation an exact science?
No. While valuation methods provide structure, many inputs involve estimates or subjective judgment. The final value is ultimately determined when a willing buyer and willing seller agree on a price.
Who should I work with to value my business?
Legal and tax professionals familiar with business valuation, along with a qualified business appraiser, can help ensure the valuation process reflects your specific business and goals.
Talk to a Professional About Your Business’s Value
Whether you’re planning for succession, preparing for a loan application, or thinking ahead to a future sale, understanding your business’s value is an important first step. The Art and Science of Successful Planning, based in Fort Myers, Florida, works with business owners throughout Southwest Florida to help think through the financial planning considerations tied to business valuation.
¹ BizBuySell, 2025 Year in Review.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice and may not be used for the purpose of avoiding any federal tax penalties. Please consult a legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information only and should not be considered a solicitation for the purchase or sale of any security.
