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By JoAnn Lombardi, President
VR Business Sales/Mergers & Acquisitions
At VR Business Sales / Mergers and Acquisitions, we rely on proven valuation methodologies. These include the cost approach, the income approach, and the market approach. These methods are grounded in data, financial analysis, and industry-specific insights. However, many business owners still ask about less scientific metrics, such as industry rules of thumb. Where do these fit in today’s valuation landscape?
The International Glossary of Business Valuation Terms defines a rule of thumb as:
“A mathematical formula developed from the relationship between price and certain variables based on experience, observation, hearsay, or a combination of these. These formulas are usually industry-specific.”
While rules of thumb can offer a quick reference point or a basic sanity check, VR firmly believes they should never be used as the sole basis for valuing a business. Here are the key reasons why:
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