Business Valuations And Determining The Fair Value

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People seek business valuations for a variety of reasons. Often, the trigger is a court order in divorce proceedings or to settle a dispute. Valuations can also be obtained in anticipation of buying or selling to a third party.

In today’s podcast, Ryan Moore, a manager at Riney Hancock CPAs, tells us about the methods used to determine the fair value of your business. Valuations should be done by someone with the right expertise and competence.

Two well-known professionals in this field are:

  • Certified valuation analyst (CVA), accredited by the National Association of National Association of Certified Valuators and Analysts;
  • Accredited in business valuation (ABV), a designation awarded by the American Institute of Certified Public Accountants (AICPA).

Methods used to determine the fair value of a business:

  1. The income approach, which assumes the value is a function of the economic benefit of the business. Commonly used for service businesses.
  2. The asset approach, which assumes the value of the business is in the assets it owns. Commonly used for businesses that are investment oriented.
  3. The market approach, which is influenced by historical sales of comparable businesses.
  4. A combination of the first three methods may be used to come up with an average value.

Tune in for more.

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