People treat business valuation like a black box. It is not. There are really just three ways to answer the question “what is this worth,” and a good valuation uses more than one to cross-check itself. Here they are, simply.
1. The income approach: what will it earn?
A business is worth the profit it will produce in the future, brought back to what that profit is worth today. If a company will reliably throw off cash for years, that future cash has a present value, and that is the number.
Think of a fruit tree. You are not just buying the wood; you are buying every basket of apples it will grow. The income approach counts the apples.
2. The market approach: what did similar businesses sell for?
If businesses like yours, similar size, similar industry, similar growth, sold for a certain multiple of their profit, that tells you a lot about yours. It is the same logic as pricing a house by what the neighbors’ houses sold for.
One business owner assumed his industry’s big headline sale prices applied to him. But those were much larger companies. The right comparables, businesses his actual size, gave a more honest and useful number.
3. The asset approach: what does it own, minus what it owes?
Add up what the business owns, equipment, inventory, property, then subtract what it owes. This works best for asset-heavy businesses, and acts as a floor for the others.
Why use all three?
Each approach has a blind spot. Income leans on forecasts. Market leans on finding true comparables. Asset can miss the value of a strong brand or loyal customers. When two or three approaches land in the same range, you have a number that holds up. When they disagree, the gap itself tells you something worth knowing.
Talk it through
Want to see what each approach says about your business, and why they might differ? The M1 Valuations team triangulates all three into one defensible number. When you are ready, we will walk you through it.