A business valuation is the process of estimating and assessing the financial value of an organization. It is important for financial reporting and other reasons like the division of shares or selling your business a part of it, making succession plans, and getting finance.

The value of a business can be determined by its assets, earnings or market potential. The most commonly used methods for valuing a business include the earnings-multiples or times-revenue method and the discounted cash flow (DCF) technique.

The times-revenue or earnings-multiples method multiply your business's earnings or revenue by an industry-standard multiple to calculate a value. This is a good way of estimating the value of your business, but it doesn't necessarily provide a complete picture. A cafe that is earning 250k per year and is valued five times the amount, may be worth more if it's run by an established brand or superior dining experience.

The book value formula is a different method used. This method adds the total assets of your business, such as equipment, real estate and inventory, and subtracts liabilities, which include outstanding loans and debts. This is a straightforward and quick procedure, but it might not reflect your business' true worth, especially when it comes to the potential for growth. Investors and buyers are often more concerned about the potential for future profits than the current assets. This is why it's a good idea to conduct a complete valuation, for example by an appraiser for businesses or a broker prior to seeking investment from an outside source.