Using assets to value your business can be used if your business is considered asset-intensive i.e. the assets heavily contribute to the level of profit that is generated. The Net asset value can therefore be obtained from the sum of the following:
An accumulated value of all the fixed assets including plant, land and machinery
The value of any leasehold improvements: this includes any refurbishments or modifications the owner may have made such as new office space and/or equipment. You should note that the leaser can make the owner return the leasehold to the original state should these changes not be beneficial to you. Any improvements would therefore not be included in the overall value
The value of the inventory which can include raw materials, stock and anything that may be considered as work-in-progress
The value of intangible assets that not only includes goodwill but also logos, trademarks, and any patents
3c) Owner Benefit Valuation
This method uses a figure between 2 and 3 (depending on what you think is appropriate) and multiplied by the owner's discretionary cash-flow.
Discretionary annual cash-flow can be referred to as the money that is not used in the operations of the business - profits, owner's salary, non essential expenses etc. Using this approach gives a value that reflects the business' ability to generating cash-flow and profits. If you want, say, 2.5 times the owners total benefits and the discretionary income is £20,000, the sum would be:
2.5 x £20,000 = £50,000 purchase price
3d) The Comparison Valuation
This method is subjective but is very common for the smallest of small businesses. It involves giving your business a value that reflects that of other similar businesses in the area that have been sold. Remember that you should take the actual selling price, not the original asking price.
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