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Valuation Methods

Valuation Methods

There is no one correct way to value a business. Facts and circumstances affect valuation, and it wouldn't be unusual that an agreed-upon value is the result of combining several or more methods.

Book Value

Book value, typically calculated as assets less liabilities, is one of the simplest methods. In most cases, simple book value must be adjusted to more appropriately reflect fair market value.

Formula Valuation

Valuation by means of a formula can take many variations. The factors that the IRS considers will be incorporated into various formulas. Two frequently used formulas are:

Value

Appraised value is accomplished through a third party. This is the most expensive way to establish the value of a business. If an appraiser is hired, the appraiser should be certified.

Business Owner's Estimate

The agreed upon value is just that. It is the owner's best estimate of what the business is currently worth.

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Last Updated: 12/14/2017