If you're thinking of purchasing or selling an existing business, going public, or taking an investor, one of the first things you'll need to determine is how much the business is worth. Valuing a business is a tricky process and achieving fair market value should always be your top priority. Fair market value is the amount at which the property would change hands between you and the seller when neither of you are under compulsion to buy and when you both have reasonable knowledge of relevant facts concerning the business.
But what facts do you need to know? And how can you go about assessing those facts before you set out to acquire the business at fair market value? Generally, there are three approaches to determining fair market value: the income approach, the asset approach and the market approach.