A business valuation is an informed estimate of what a business is worth. Owners use valuations to make big decisions with more confidence, especially when money, partners, and long-term plans are on the line.

Valuation matters because it reduces uncertainty. Without a clear sense of value, it’s harder to negotiate a fair deal, secure financing, or make strategic choices around a sale, merger, acquisition, or investment. Valuations are also common in succession planning and legal disputes, where you need a well-supported number (or range) to move forward. 

When Businesses Need a Valuation

You’ll see valuations come up when a business is:

• Buying or selling (or bringing in investors) and needs a defensible price. 
• Planning a succession (family transfer, management buyout, or owner exit). 
• Considering a merger, acquisition, or divestiture and wants to maximize deal value and negotiate from a stronger position. 
• Raising financing and needs to build lender or investor confidence with clear, supported numbers. 
• Managing transaction risk in a high-stakes deal (due diligence, terms, and “what could go wrong”). 

The Three Approaches to Valuation

Valuators usually rely on three main approaches. Think of them as three different “lenses” for answering the same question.

1) Income Approach: The Discounted Cash Flow (“DCF”) Method

This approach says: a business is worth the cash it can generate in the future.

A DCF is basically a forward-looking story:

• You estimate the business’s future cash flow the way an owner would experience it (not just accounting profit).
• Then you translate those future dollars into today’s dollars, because money received later is less valuable than money received now.
• Discounting (in plain language): Discounting is how you account for time and risk. The riskier and less predictable the business, the bigger the “discount,” and the lower the value.
• Terminal value (why DCF doesn’t stop at Year 5): Most DCFs forecast a handful of years in detail, then add a terminal value to represent everything after that forecast period.

In practice, the terminal value is usually estimated using either:

• A steady long-term growth assumption, or
• An exit multiple assumption (what similar companies sell for). 

Why DCF is useful: DCF forces us to explain what drives value: growth, margins, how much cash gets tied up in inventory/receivables, and how much reinvestment is needed to keep growing. It’s often the best tool when the business has a believable plan and you want a fundamentals-based answer.

2) The Market Approach: Relative Value

This approach assumes that similar companies tend to be valued in similar ways. So, if you can find good “comparables,” their pricing becomes a reference point for your business. 

There are three common market methods. The two most used are:

1. Guideline Public Company (“GPC”) Method (also called Comparable Companies): You look at publicly traded companies that are similar and use their valuation “multiples” (like EV/EBITDA or price-to-earnings) to estimate what your business might be worth. 
2. Guideline Transaction (“GTM”) Method (also called Precedent Transactions): You look at real acquisition deals for similar companies and apply the pricing from those deals to the subject business. Deal multiples can be higher because buyers often pay a control premium to gain control of the company. 
3. Market Price Method: This is used when there’s an observable market price for the subject interest (more common for publicly traded shares than private businesses).

Why the market approach is useful: It’s grounded in real market behavior and often matches how buyers talk (“this industry sells for X times EBITDA”). The big challenge is finding truly comparable companies and adjusting for differences (size, growth, customer concentration, profitability, risk).

3) The Cost Approach: Replacement / Reproduction Cost (the Asset Approach)

This approach is based on the following assumption: a sensible buyer won’t pay more than it would cost to replace what they’re getting.

In simple terms, you ask:

• What would it cost today to recreate the business (or an asset with similar usefulness)?
• What are the business’s assets worth today, and what liabilities come with them?

In valuation standards, the cost approach is often described as current replacement cost, adjusted for things like wear-and-tear and obsolescence, and built on the idea that a market participant wouldn’t pay more than the cost to acquire the same service capacity elsewhere. 

How it’s applied to a business (the “asset approach” version):

• Estimate the fair value of the business’s assets
• Subtract the fair value of its liabilities
• The result points toward the equity value

When it’s most useful: This approach is usually strongest for asset-heavy businesses (like investment holding companies or real estate holding companies), or in situations where earnings aren’t reliable.

How Valua Partners Reconciles the Approaches

It’s normal for these approaches to give different answers. A good valuation explains why, then puts more weight on the approach that best fits the business:

• If value is mainly about future cash generation, DCF often carries higher weight.
• If there’s strong data on similar companies and deals, the market approach can be very persuasive.
• If the business is asset-driven, the cost/asset approach may be most relevant.

The end result is usually a supported range, not a magic single number.

Why Choose Valua Partners? 

Our team combines more than 40 years of specialized experience in business valuation. We’ve helped business owners across industries make informed decisions with valuations that are accurate, defensible, and respected by lenders, advisors, and regulators.

Our team members hold some of the highest designations in the field, including:

• Chartered Business Valuators (CBV) Institute 
• American Institute of Certified Public Accountants – Accredited in Business Valuations (ABV)
• Chartered Financial Analyst Institute (CFA)
• Chartered Accountants of Ontario (CA)
• Chartered Professional Accountants of Ontario (CPA)

How Does Valua Partners Stand Out? 

Valua Partners builds CFO-grade models designed for real stakeholders: management teams, boards, lenders, and investors. We start with the decision you’re trying to make, build a driver-based model with transparent assumptions, and deliver a structure your team can update on a predictable cadence, along with scenarios, sensitivities, and a dashboard that makes the outputs easy to use.

We even provide model audits: we review an existing model for structural risks, broken logic, hardcodes, and missing cash mechanics, and turn it into a version you can trust.

If you’re preparing for a capital raise, acquisition, expansion, or board planning cycle, request a Valuations consultation at Valua Partners. 

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