Question #1 Why can’t a “rule of thumb” be used to value a business? While there are certain multiples of net income or discretionary cash flow that can be used for business entities, in general a rule of thumb does not consider a specific business’s financial characteristics, inherent risks, and ownership attributes. Question #2 What methods are used to value a business? Depending on the purpose of the valuation and the type of report required, an asset approach, an income approach, and a market approach may be considered. Often times all three approaches are used and a weighting of each is subjectively applied by the appraiser. Question #3 Why are certain “discounts” applied to a business valuation? Depending on the ownership interest being valued, a discount for lack of control (if valuing a minority interest who cannot affect the business operations), a discount for lack of marketability (time needed to sell the interest), or both discounts may be applied to the value.

1. VERITICONSULTINGLLC
Top Three
Business Valuation FAQ’s
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2. QUESTION #1
While there are certain multiples of net income or
discretionary cash flow that can be used for business entities,
in general a rule of thumb does not consider a specific
business’s financial characteristics, inherent risks, and
ownership attributes.
TRUTHBEHINDNUMBERS.COM
In-DepthExperienceandUnparalleledExpertise
Why can’t a “rule of thumb” be used
to value a business?

3. QUESTION #2
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What methods are used to value
a business?
Depending on the purpose of the valuation and the type of
report required, an asset approach, an income approach,
and a market approach may be considered. Often times all
three approaches are used and a weighting of each is
subjectively applied by the appraiser.

4. QUESTION #3
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In-DepthExperienceandUnparalleledExpertise
Why are certain “discounts” applied
to a business valuation?
Depending on the ownership interest being valued, a discount
for lack of control (if valuing a minority interest who cannot
affect the business operations), a discount for lack of
marketability (time needed to sell the interest), or both
discounts may be applied to the value.

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