Hi, I’m Chris Walton, author of this guide and CEO of Eton Venture Services.
I’ve spent much of my career working as a corporate transactional lawyer at Gunderson Dettmer, becoming an expert in tax law & venture financing. Since starting Eton, I’ve completed thousands of business valuations for companies of all sizes.
Read my full bio here.
Valuing a business isn’t just about adding up assets or running calculations—it’s about telling the story of what makes your business special.
Whether you’re selling, merging, or simply planning ahead, the right approach can reveal your business’s potential and give you the leverage you need to negotiate with confidence.
Read on to discover the three main valuation methods, who they suit best, and grab our valuation cheat sheet for a handy reference on the key aspects of valuation.
Business valuation is needed in several instances, such as navigating a merger or acquisition, ensuring tax compliance, meeting financial reporting standards, resolving ownership changes, raising funds, and more.
If you’re facing any of these situations, simplify your process with our Business Valuation Cheatsheet – a quick, reliable reference for the key approaches and methods whenever you need it.
The asset-based approach determines a company’s value based on the net worth of its assets after subtracting liabilities.
It’s particularly suited for businesses with significant tangible assets, such as property or machinery, or those in early stages with limited revenue.
For example, manufacturers or asset-heavy startups often rely on this method to establish a baseline value.
This approach compares your business to similar companies, using benchmarks like revenue multiples or recent transaction data.
Ideal for businesses in established industries with clear financial histories, it provides a snapshot of how the market perceives similar businesses.
For example, if your industry’s benchmark multiple is 2.5 and your revenue is $1 million, your valuation might be around $2.5 million – adjusted for differences like risk or size.
This approach values a business based on its ability to generate future cash flows, discounting those projections to present value.
It’s best suited for companies with stable cash flows and predictable growth.
For instance, a renewable energy firm with secure long-term contracts might use this method to reflect its profitability over time accurately.
Note that relying on a single valuation method can leave gaps in understanding a business’s true worth. Valuation professionals usually combine approaches to balance their strengths, offering a more complete view.
For example, while an asset-based approach highlights tangible assets, market-based or income-based methods capture intangible value, like growth potential or brand reputation.
This mix also helps cross-check results, revealing gaps or inconsistencies that might need deeper analysis. It also builds credibility, giving buyers and sellers a realistic, well-rounded basis for decision-making.
For more insights into the different valuation methods under each approach, read our full article on business valuation methods.
Small businesses often require a tailored valuation approach because their financial performance is closely tied to the owner’s involvement and personal expenses.
The Seller’s Discretionary Earnings (SDE) method addresses this by starting with Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), adding back the owner’s salary, personal benefits, and non-recurring costs, and applying an industry-specific multiple to the result.
For example, if your SDE is $250,000 and your industry’s multiple is 2.5, your business’s estimated value would be $625,000.
To learn more about the Seller’s Discretionary Earnings method, read our full article on how to value a business for sale.
Schedule a free consultation meeting to discuss your valuation needs.
Chris co-founded Eton Venture Services in 2010 to provide mission-critical valuations to venture-based companies. He works closely with each client’s leadership team, board of directors, internal / external counsel, and independent auditor to develop detailed financial models and create accurate, audit-proof valuations.
