How come business valuation methods can produce different results?

Is it possible to use the income business valuation methods and arrive at different results? Yes indeed! Consider two prospective business buyers doing the income projections and assessing the risk of owning a given business.

Each buyer will likely have a different perception of the risk involved, hence their capitalization and discount rates will differ. Also, the two buyers may have different plans for the business, which will affect how they project the income stream.

Thus, even if they use the same valuation methods the resulting value conclusions may be quite different. Put another way, the two buyers apply the so-called investment value standard to determine the business worth. They measure the business value differently, based on their unique ownership or investment objectives.

This flexibility of measuring the business worth to match one’s objectives is one of the greatest strengths of the income valuation approach.

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