How to value a company: methods, multiples and tips

Published Wednesday 18 February 2026

Table of contents

• What is a company valuation?
• Why value your business
• What to do before valuing your business
• Tangible factors that affect company value
• Intangible factors that affect company value
• Ways to value your business
• Which valuation method should you use
• Getting the right value for your business
• Keep your financials valuation-ready
• FAQs on valuing a company

Key takeaways

• Prepare your financial records thoroughly before starting any valuation by organising three to five years of financial statements, reconciling accounts, documenting all assets and liabilities, and gathering contracts and industry benchmarks.
• Use multiple valuation methods rather than relying on a single approach, as different methods work better for different business types; asset-heavy businesses suit book value calculations while service businesses work better with earnings or revenue multiples.
• Recognise that intangible factors like customer relationships, competitive position, and growth potential often drive the difference between average and premium valuations because they're harder for competitors to replicate.
• Understand that valuations provide estimates rather than guaranteed sale prices, as the final amount depends on negotiation, market conditions, and buyer interest.

What is a company valuation?

A company valuation is an estimate of your business's monetary worth, and professional standards provide detailed guidance on what constitutes a valuation service. It doesn't set or guarantee a sale price, but it gives you a concrete figure to work with.

You can use a valuation for:

• financial reporting
• seeking finance or investment
• negotiating during a sale

Why value your business

Knowing your business's worth helps you make confident decisions about its future. Whether you're planning to sell, seeking investment, or simply tracking performance, a valuation gives you a concrete number to work with.

Common reasons to value your business include:

• selling your business or considering offers
• seeking investment or business loans
• bringing in new partners or buying out existing ones
• planning for succession or estate purposes
• reviewing business performance and setting growth targets
• resolving legal disputes or divorce settlements

A formal valuation, which may be required for legal or financial purposes, must adhere to official guidelines like the International Valuation Standards (IVS), with new standards taking effect since January 2025. For internal planning, a rough estimate using these methods can be enough to guide your decisions.

What to do before valuing your business

Accurate valuations depend on accurate records. Before running any calculations, gather and organise your financial information. Clean, up-to-date books make the process faster and the results more credible.

Prepare for a business valuation by completing these steps:

1. Organise financial statements (balance sheet, profit and loss, cash flow) for the past three–five years
2. Reconcile your accounts and clear up any discrepancies
3. Document all assets, including equipment, inventory, property, and intellectual property
4. List all liabilities, including loans, unpaid bills, and outstanding debts
5. Gather contracts, leases, and customer agreements
6. Research industry benchmarks and valuation multiples for your sector
7. Consider having an accountant review your books before the valuation

Missing or messy records can lower your valuation or delay the process. If your books need work, accounting software like Xero can help you get organised quickly.

Tangible factors that affect company value

Several physical and measurable elements contribute to your business's value. These tangible factors form the foundation of most valuations because they're easy to verify and compare.

Tangible factors are the physical and measurable elements that contribute to your business's value. Understanding what buyers and valuers look for helps you present your business in the best light.

The main tangible factors include fixed assets, inventory, location, and established staff and systems.

Fixed assets

Property, equipment, and vehicles all contribute to company value. Their condition, age, and current market value matter more than what you originally paid. Well-maintained assets in good working order are worth more than neglected ones.

Inventory and stock

Current, sellable stock adds value. Obsolete or slow-moving inventory may need to be discounted or excluded. Retail and manufacturing businesses should track inventory turnover to show how efficiently stock converts to sales.

Location

For physical businesses, location affects value significantly. Foot traffic, accessibility, parking, and lease terms all play a role. A favourable long-term lease can be an asset; an expiring lease or rising rent may be a liability.

Long-term staff and systems

Experienced employees who stay with the business add value, especially if they hold key relationships or specialised knowledge. Documented processes and systems that work without the owner's constant involvement also increase attractiveness to buyers.

Intangible factors that affect company value

Beyond physical assets, non-physical elements can significantly affect your business's worth. These intangible factors often drive the difference between an average valuation and a premium price, because they're harder for competitors to replicate.

Intangible factors are the non-physical elements that affect your business's worth.

Customer relationships

Repeat customers and long-term contracts provide predictable revenue. A diversified customer base is more valuable than one dependent on a few large accounts. Customer loyalty and satisfaction data can support a higher valuation.

Reliability of suppliers

Established supplier relationships with favourable terms add stability. Exclusive arrangements or preferred pricing can be valuable assets. Strong supply chain resilience reduces risk for potential buyers.

Competitive position

Your market share, brand recognition, and barriers to entry all affect value. A strong reputation and clear point of difference make your business harder to replicate and more attractive to buyers.

Business risks

Buyers discount for risk. Customer concentration (relying on one or two big clients), key person dependency (the business can't run without you), regulatory exposure, and market volatility all lower valuations.

Intellectual property

Patents, trademarks, proprietary processes, and trade secrets can significantly increase value. Even informal IP like unique methods or specialised knowledge adds worth if it's documented and transferable.

Growth potential

Businesses with clear expansion opportunities command higher multiples. Market trends, scalability, recurring revenue, and untapped markets all signal growth potential to buyers and valuers.

Ways to value your business

Here are a few of the most frequently used methods to value a company:

Book value calculation

Book value measures what your business owns minus what it owes, based on your balance sheet. It's the simplest way to calculate a baseline company value.

Book value formula

Book value = Assets − Liabilities

In other words, it's the net value of everything your business owns after debts are subtracted.

Assets include:

• property and equipment
• inventory
• cash reserves
• accounts receivable
• intellectual property like patents

Liabilities include:

• loans
• unpaid taxes
• accounts payable (bills you owe)

Example: If your business owns $10m in assets and owes $5m in debts, the book value is $5m.

Liquidation value calculation

Liquidation value estimates what owners would receive if they sold all assets at current market prices and repaid all debts. Unlike book value, it reflects what assets are actually worth today rather than their recorded value.

The distinction matters because market values fluctuate. Factors that affect what you'd actually get include:

• changes in demand
• increased competition
• obsolete technology
• market disruption

Liquidation valuation formula

Company value = Liquidation value of assets – Liabilities

Multiply company earnings

Earnings-based valuation calculates company worth by multiplying annual profits by an industry-standard figure. It's one of the most common methods for valuing small businesses.

Earning-based calculation formula

Company value = Earnings × Multiplier

Two variables determine your result:

Earnings figure: This is usually either net profit or earnings before interest, taxes, depreciation, and amortisation (EBITDA).

Multiplier: This typically ranges from two times to more than 10 times. Higher multipliers apply to businesses with:

• loyal customer bases
• market exclusivity
• protected intellectual property
• other hard-to-replicate advantages

Many industries have standard multiplier ranges. A local accountant or business broker can tell you what's typical for your sector.

Multiply company revenue

Revenue-based valuation (also called times-revenue) calculates company worth by multiplying annual revenue by an industry multiplier. It's useful for businesses that don't yet have stable profits but generate consistent sales.

Times-revenue formula

Company value = Annual revenue x Multiplier

As with the earning-based calculation, the multiplier plays a big role in your final valuation. There are often accepted industry-specific multipliers. A local accountant or business broker will know the multiplier range for your type of business.

Multiply free cash flow

Free cash flow valuation uses the money left after paying operating costs and planned capital expenditure. This method shows whether a business can fund improvements and growth beyond its usual running costs.

Free cash flow formula

Company value = Free cash flow x Multiplier

This method suits businesses that need upgrades, such as:

• new equipment
• a shop refit
• a digital makeover

It reveals whether the business generates enough cash to fund improvements beyond day-to-day costs. Calculating free cash flow requires detailed analysis of planned capital expenditure.

Entry-cost analysis

Entry-cost analysis values a company by estimating what it would cost to recreate it from scratch. The valuer calculates capital expenses and adjusts for customer acquisition, brand building, and similar factors.

This method works well for asset-driven businesses. For example, a printing company's value might be close to the cost of buying a printing press and setting up operations.

It's less useful for businesses with hard-to-replicate elements like:

• key relationships
• proprietary information
• established goodwill
• unique expertise

Market capitalisation

Market capitalisation is the total value of all a company's shares. It applies to publicly traded companies and is less relevant for most small businesses.

Share price formula

Company value = Share prices x Number of shares

Enterprise value calculation

Enterprise value builds on market capitalisation by adjusting for debt and cash reserves. It provides a more complete picture of a publicly traded company's worth, though it's primarily relevant for larger businesses.

Enterprise value formula

Company value = Market capitalisation + Cash – Debts

Enterprise value gives a fuller picture than market cap alone because it accounts for how the company is financed. It's often used alongside the debt-to-equity ratio, which shows how much of operations are funded by debt versus equity.

Which valuation method should you use

The right valuation method depends on your business type, industry, and purpose. As professional reports like the 2024 Valuation Practice Survey show, most valuers use multiple methods and compare results to find a realistic range.

Here's a quick guide to matching methods with situations:

• Asset-heavy businesses (manufacturing, construction): Book value or liquidation value
• Service businesses (consulting, agencies): Earnings or revenue multiple
• High-growth businesses (tech, startups): Free cash flow multiple
• Businesses being sold: Multiple methods for comparison
• Legal or formal purposes (divorce, estate, disputes): Professional valuation required
• Quick internal estimates: Times-revenue or times-earnings

Industry norms matter. A business broker or accountant familiar with your sector can tell you which multipliers and methods are standard. Using multiple approaches and comparing results gives you a more realistic picture than relying on a single calculation.

Getting the right value for your business

Choosing the right method matters. With multiple valuation approaches available, selecting the best one for your situation often requires professional guidance. An accountant or business broker can help you pick the right method and find appropriate multipliers for your industry.

For a quick baseline, book value is straightforward to calculate from your balance sheet. You can create a balance sheet and pull reports on demand using software like Xero.

Valuations don't guarantee sale prices. The final amount depends on negotiation, market conditions, and buyer interest. Knowing your business's value gives you a solid starting point for discussions, even if the final price differs.

You can also find an accountant near you in the Xero directory.

Keep your financials valuation-ready

Organised financial records make valuations faster, easier, and more credible. Whether you're planning to sell or simply want to track your business performance, keeping your books in order means you're always ready.

Cloud-based accounting software like Xero helps you stay valuation-ready by:

• keeping your balance sheet, profit and loss, and cash flow reports up to date
• automating bank reconciliation and transaction categorisation
• generating professional financial reports on demand
• sharing reports securely with accountants, advisors, or potential buyers
• giving you real-time visibility into business performance

When the time comes for a valuation, you won't need to scramble. Your numbers will be accurate, current, and easy to share.

Get one month free and see how simple it is to keep your financials valuation-ready.

FAQs on valuing a company

Common questions about business valuations.

Is a business worth 5 times profit?

Not always. Multipliers typically range from two to seven times depending on industry, growth potential, and risk factors. Stable businesses with recurring revenue may command higher multiples, while riskier ventures get lower ones.

What are the 4 pillars of valuation?

The four pillars are profitability, scalability, stability, and sustainability. Buyers and valuers assess whether a business makes money, can grow, operates consistently, and will remain viable long-term.

Should I hire a professional valuer or do it myself?

For internal planning or rough estimates, DIY calculations using these methods can work. For selling, legal matters, or formal reporting, hire a professional valuer or accountant to ensure accuracy and credibility.

Do different industries use different valuation methods?

Yes. Retail and manufacturing often use asset-based methods. Service businesses typically use earnings or revenue multiples. Tech companies may focus on growth metrics and free cash flow. An accountant familiar with your industry can advise on standard approaches.

How accurate are these valuation methods?

Valuations provide estimates, not guarantees. The final sale price depends on negotiation, market conditions, and buyer interest. Using multiple methods and comparing results gives you a more realistic range than any single calculation.