Business Valuation – The process can be very complex and time-consuming, and takes quite a lot of experience to do well. There are a number of valuation methods that business appraisers have at their disposal, and even choosing the correct method (or sometimes, the correct combination of methods) to use in a given situation is more of an art than a science. Business valuation methods fall into the following categories, depending upon their major focus:
- business assets, including book value and liquidation value methods
- historical earnings, including debt-paying ability, capitalization of earnings or cash flow, gross income multipliers, and dividend-paying ability methods
- a combination of assets and earnings
- the market for similar businesses, including comparable sales
- future earnings, namely, discounted future cash flow or earnings methods
There is no substitute for an appraisal and valuation by a qualified profession.
Business appraisers are utilized to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners’ ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest. In some cases, the court may appoint a forensic accountant as the joint expert doing the business valuation.