Valuation method
Asset based valuation
An asset based valuation adds up what the business owns and subtracts what it owes. It sets a floor rather than a market value, and it is the method of last resort for a trading company.
Where it applies
It is used when earnings are absent or unreliable: a business being wound down, one that has never made a profit, or a collection of assets being sold without an operation attached.
It also serves as a check. A business valued below the realisable value of its stock and equipment is being priced incorrectly, or the assets are worth less than the books suggest.
Intangibles
For online businesses the interesting assets are rarely physical. A domain with history, a registered trademark, a customer database, content that ranks, a marketplace account with reviews: none of these appear at their real value in a balance sheet, and some do not appear at all.
Valuing them separately is possible but imprecise. Domains have an observable market; rankings and databases mostly do not.
Stock
Stock is the item most often overstated. Age, seasonality and returnability determine what it is worth to a buyer, not what was paid for it.
A stock list split by age and turnover per group settles the discussion faster than any argument about principle.
- How intrinsic value is determined (https://www.businessforsale.eu/knowledge-base/intrinsic-value)
- The importance of the domain name in securing intellectual property (https://www.businessforsale.eu/knowledge-base/importance-domain-name-for-assurance-intellectual-property)