Every founder asks it sooner or later: what is my business actually worth? The honest answer is that it depends on why you are asking. A valuation is always for a purpose and a date: a fundraise, a sale, a shareholder buyout, an audit, a dispute. The purpose decides the standard of value, and the standard decides the method.
The three ways to value a business
1. The income approach. This values the business on the cash it is expected to generate in future, discounted back to today at a rate that reflects the risk. The most common form is a discounted cash flow (DCF). It suits companies with a credible forecast, and it is the method most investors and auditors expect to see.
2. The market approach. This compares your business with similar listed companies, or with recent transactions in similar businesses, using multiples such as revenue or EBITDA. It is a useful reality check on a DCF, but in the GCC good comparables can be scarce, so the choice and adjustment of peers matters.
3. The cost approach. This values the business at what it would cost to rebuild its assets. It is mainly used for asset-heavy or holding companies, or when a business is not a going concern.
A good valuation uses more than one approach and explains why the final range sits where it does.
What moves the number
- Quality of earnings. One-off income, owner costs run through the business, and unusual items all need adjusting.
- Growth and its credibility. A forecast backed by contracts and history is worth more than a hockey stick.
- Risk. Customer concentration, key-person dependence, regulation and country risk all raise the discount rate.
- Control and marketability. A minority stake in a private company is usually worth less per share than a controlling stake.
Why independence matters
A management estimate is a starting point. Auditors, investors, banks and courts give real weight to an independent report that documents its method and every key assumption. That is the difference between a number and a defensible number.
How iConsult can help
Our team of former Big 4 valuation specialists has completed more than 60 valuations across 10 industries, under IFRS and US GAAP. We speak the auditors' language so you don't have to. Book a free consultation or see our valuation services.