How to value a business: six methods with examples

Published Monday 26 October 2026

Table of contents

• What is a business valuation?
• 6 methods to value your business
• How to calculate your business value
• Which valuation method should you use?
• When to hire a professional valuator
• Business valuation in Hong Kong
• Factors that affect business value
• Track your business value with Xero
• FAQs on business valuation

Key takeaways

• Match your valuation method to your business: earnings-based for profitable service businesses, asset-based for asset-heavy companies and times-revenue for high-growth businesses with variable profits.
• Use more than one method to get the most accurate picture. A single method can miss the value of customer loyalty, brand reputation or market position.
• Gather three to five years of profit and loss statements, balance sheets and cash flow statements before you start. Accurate data is the foundation of a reliable valuation.
• Hire a professional valuator when you’re selling, bringing on investors, facing a legal dispute or securing finance. Their objective assessments stand up to scrutiny from buyers and lenders.

What is a business valuation?

Business valuation is how you work out what your business is worth in monetary terms. The same principles apply whether you run a sole proprietorship or need to value a company with shareholders.

The process is often guided by professional standards, like the International Valuation Standards, that improve quality, comparability and transparency. Knowing this value helps you make informed decisions about selling, seeking investment or planning for the future.

Common reasons you might need to value your business:

• selling your business: set a realistic asking price based on calculated worth
• seeking investment: show potential investors your company’s value
• meeting legal requirements: satisfy accounting and compliance obligations, which often rely on standards that international valuation boards update regularly
• planning for succession: support ownership transfers and buy-sell agreements
• securing loans: give lenders credible collateral valuations

A business valuation gives you a starting point, separate from the final selling price. It’s a foundation for negotiations, but the final price depends on demand, competition and market conditions.

Intangible factors also play a role. Future growth prospects, customer relationships and external events like trade tensions can all affect what a buyer is willing to pay.

6 methods to value your business

There are three main approaches to valuing a business: asset-based, income-based and market-based. Here are six proven methods that fall within these categories.

The worked examples follow one fictional business, a printing company in Kwun Tong, so you can compare the results. All figures are illustrative.

1. Book valuation

Book valuation calculates your business worth using a simple formula: assets minus liabilities. This method treats your business as the sum of what it owns minus what it owes.

Assets include:

• physical property: land, buildings, vehicles, equipment, inventory
• financial assets: cash and accounts receivable
• intellectual property: copyrights, trademarks, patents

Liabilities include:

• debt obligations: business loans and credit lines
• outstanding payments: taxes owed and accounts payable

Example: the Kwun Tong printing business has HK$4,200,000 in assets and HK$1,500,000 in liabilities, so its book value is HK$2,700,000.

2. Liquidation value

Liquidation value estimates what you’d receive if you closed your business, sold all assets and paid off debts. This method is useful when you need to understand the minimum value of your business, such as when you’re weighing up a liquidation.

Unlike book value, it reflects current market prices rather than the original purchase price minus depreciation. Assets usually sell for less in a quick sale.

Example: in a quick sale, the printing business’s equipment and stock realise HK$2,600,000. After paying HK$1,500,000 in liabilities, its liquidation value is HK$1,100,000.

3. Earnings-based valuation

Earnings-based valuation works out your business worth by multiplying annual earnings by an industry multiplier. The formula is: value = earnings × multiplier.

As a rough guide, multiplier ranges often look like this.

• 2x to 3x: basic service businesses with high competition
• 4x to 6x: established businesses with steady customers
• 7x and above: businesses with strong competitive advantages

Several factors can increase your multiplier.

• Customer loyalty: long-term relationships with repeat buyers
• Market position: local exclusivity or dominant market share
• Intellectual property: patents, trademarks or proprietary processes
• Business model: hard-to-replicate operations or systems

You can use different earnings figures in the formula.

• Net profit: bottom-line earnings after all expenses
• Earnings before interest, taxes, depreciation and amortisation: also called EBITDA, typically higher than net profit and often preferred by buyers

Example: the printing business earns HK$600,000 in annual net profit. With a 3x multiplier it’s worth HK$1,800,000; with a 5x multiplier it’s worth HK$3,000,000.

4. Times-revenue valuation

Times-revenue valuation calculates your business worth by multiplying annual revenue by an industry multiplier. The formula is: value = revenue × multiplier.

This method works well for businesses with consistent sales but variable profits. Multipliers typically range from 0.5x to 2x for most industries, though high-growth sectors may command higher multiples.

Example: with HK$3,000,000 in annual revenue and a 0.8x multiplier, the printing business is worth HK$2,400,000.

5. Discounted cash flow valuation

Discounted cash flow (DCF) valuation uses free cash flow rather than profit or revenue. Free cash flow is the money left after paying operating expenses and reinvesting in your business.

A full DCF projects future free cash flow and discounts it back to today’s value; a simple shortcut is value = free cash flow × multiplier. DCF is less common for small businesses because it:

• requires detailed financial analysis beyond basic profit and loss
• often needs help from a professional valuator
• demands comprehensive records of capital expenditures

DCF works best for businesses with large equipment, property or technology investments where maintenance costs vary year to year.

Example: the printing business generates HK$450,000 in free cash flow. With a 5x multiplier, it’s worth HK$2,250,000.

6. Entry-cost valuation

Entry-cost valuation estimates what it would cost to build an equivalent business from scratch. The existing business is likely worth around that amount, once you factor in the time and effort needed to develop customer relationships and goodwill.

Use entry-cost as a sense-check. If your times-revenue method shows HK$300,000 but entry-cost shows HK$100,000, you may need further analysis to find the true value.

Example: rebuilding the printing business would take HK$1,800,000 in equipment, HK$400,000 in fit-out and roughly HK$600,000 to win the same customer base. Its entry-cost value is about HK$2,800,000.

How to calculate your business value

Ready to find out what your business is worth? Follow these steps to get a clear estimate.

1. Gather your financial documents. Collect your profit and loss statements, balance sheets and cash flow statements for the last three to five years, as accurate data is the first step to a reliable valuation.
2. Choose a valuation method. Select one or more of the methods above. An earnings-based method is common for profitable businesses, while an asset-based method might suit a company with lots of equipment or property.
3. Calculate. Apply the formula for your chosen method. For example, with an earnings-based method, multiply your annual profit by a suitable industry multiplier.
4. Adjust for other factors. Consider intangible assets like your brand reputation, customer loyalty and market position, which can raise or lower your final value.
5. Get a professional opinion. If you need a formal assessment or have a complex business, consider hiring a professional who can give an objective assessment that stands up to scrutiny from buyers, investors or lenders.

Which valuation method should you use?

The right valuation method depends on your business type and goals. Using a combination of methods often gives the most realistic picture.

• Asset-heavy businesses (manufacturing, real estate): use book or liquidation valuation when value is tied to physical assets
• Service-based businesses: use earnings-based valuation when you have strong, consistent profits
• High-growth startups: use times-revenue or DCF to account for future potential, even without current profitability

Start by deciding why you need to value your business. Your purpose will guide you to the most suitable method.

When to hire a professional valuator

You can estimate your business’s value on your own, but sometimes you need a formal, objective assessment. A professional valuator assesses your company’s worth in a way that’s defensible.

Consider hiring a qualified valuation professional, such as a certified public accountant (CPA), if you’re:

• selling your business and need a credible starting point for negotiations
• bringing on investors or partners and need to set share prices
• going through a legal process such as divorce, shareholder disputes or estate planning
• applying for financing that requires a formal valuation
• dealing with complex business structures or valuable intellectual property

Professional valuations that follow official guidelines, like the American Institute of Certified Public Accountants’ (AICPA) Standards for Valuation Services, stand up to scrutiny. Do-it-yourself methods work well for internal planning, while high-stakes decisions benefit from expert analysis.

Business valuation in Hong Kong

If your valuation leads to a share sale or a share-based acquisition, Hong Kong stamp duty rules shape the final numbers. Plan for these points when you set a price.

• Share transfers carry stamp duty of 0.1% on each of the bought and sold notes, 0.2% in total, under GovHK stamp duty rates in place since 17 November 2023.
• Duty is charged on the price or the value of the shares, as set out in Inland Revenue Department (IRD) Stamp Office guidance, plus a fixed HK$5 on the instrument of transfer.
• The Stamp Office values unlisted shares from the company’s latest accounts, so duty can follow that value even if you agree a lower price.
• Contract notes need stamping within two days of a sale made in Hong Kong, or 30 days for a sale made elsewhere.

You can check the duty on a specific deal with the IRD stamp duty computation tool.

For a formal valuation, such as a sale, a share issue, a dispute or an IRD query, use a certified public accountant (CPA) registered with the Hong Kong Institute of Certified Public Accountants (HKICPA). You can search the HKICPA Find a CPA directory and ask whether their work follows the International Valuation Standards.

Buyers also do their own due diligence when buying a business, so up-to-date accounts make your valuation easier to support.

Factors that affect business value

When you calculate a valuation, you get a number, but factors that are harder to quantify also shape the true worth of your business. These elements can strongly influence what a buyer is willing to pay.

• Market conditions: the overall health of the economy and your industry can affect value. A growing market often leads to higher valuations.
• Customer loyalty: a business with a strong base of repeat customers is less risky and therefore more valuable.
• Brand reputation: a well-respected brand can command a premium. Positive reviews and strong word-of-mouth are valuable assets.
• Competitive advantage: unique products, proprietary technology or a prime location can set you apart from competitors and increase your worth.
• Employee expertise: a skilled and stable team is a major asset that reduces risk for a new owner.

Track your business value with Xero

Knowing your business’s value helps you make smart decisions for its future. Whether you’re planning for growth, considering a sale or seeking investment, a clear view of your finances puts you in control.

With real-time data and easy-to-read reports, you can track your performance and cash flow and see the full picture of your financial health. Your balance sheet shows your book value and is essential for most valuation methods.

Get one month free and see how Xero makes managing your business finances straightforward.

FAQs on business valuation

Here are answers to common questions about valuing your business.

How do you estimate the value of a business?

Multiply your annual revenue or profit by an industry-standard multiplier; for example, a business with HK$500,000 in revenue and a 2x multiplier would be valued at HK$1 million. The right multiplier depends on your industry, profitability and growth potential.

How much is a business worth with HK$500,000 in sales?

A business with HK$500,000 in sales could be worth roughly HK$250,000–HK$1 million at typical times-revenue multipliers, depending on profitability, industry and market conditions. Use the times-revenue or earnings-based methods for a more accurate estimate.

Is a business worth 3 times profit?

A 3x profit multiplier is a common benchmark, though multipliers vary by industry and situation. Stable businesses may command 4–5x, while newer or riskier businesses might see 2x or lower.

How much is a business worth that makes HK$100,000 a year?

If your business generates HK$100,000 in annual profit, it might be valued at HK$200,000–HK$500,000. Stable businesses in low-risk industries may command 4–5x multipliers, while newer or higher-risk businesses might see 2–3x.

How much is a business worth with HK$1 million in sales?

A business with HK$1 million in sales could be worth HK$500,000 to several million Hong Kong dollars. Profitability matters more than revenue alone, so a high-margin tech company is worth far more than a low-margin retailer with identical sales.

What’s the difference between business valuation and market value?

A business valuation is an estimate based on financial data and formulas, while market value is the actual price a business sells for. Your valuation informs how you negotiate, but the final price depends on what a buyer is willing to pay.