Buying an Existing Business: Discounted Future Earnings Method and Earnings Forecasting

Dec 26, 2025

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This guide outlines the process of purchasing an existing business using the discounted future earnings method. It emphasizes forecasting future earnings over five years through a weighted average that combines pessimistic, most likely, and optimistic scenarios. By calculating projected earnings and applying a structured approach, potential buyers can make informed decisions about business valuation and investment risk. Learn how to effectively evaluate a business's future profitability and secure a successful acquisition with our detailed step-by-step method.

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Buying an Existing Business: Discounted Future Earnings Method and Earnings Forecasting

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Buying An Existing Business For Sale
Discounted Future Earnings Method 3 Forecasts: • Pessimistic • Most Likely • Optimistic Variation 3: Discounted Future Earnings Method: Step 1: Project earnings five years into the future: Compute a weighted average of the earnings: Pessimistic + (4 x Most Likely) + Optimistic 6

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