The single most important market factor to impact the value of a Business is the supply and demand of an equally desirable substitute that is available in the marketplace. According to the element of substitution, the value of a thing (Business) tends to be determined by the cost of acquiring an equally desirable substitute. A buyer will pay no more for a Business than the cost of purchasing a similar Business. This concept is the basis of fair market value and is the overriding methodology in this Appraisal report.
There are three approaches to determining the value of any Business:
1. The cost approach, which considers the cost of purchasing or producing the
Business.
2. The income approach, which is a financial analysis consisting of capitalizing
an income stream based on the cost of money and a risk rate that reflects
current market conditions.
3. The market data approach, which values the Business based on current sales
in the marketplace for the same or similar Businesses.
In the Business Appraisal report you will find as many methods, under each approach, as is reasonably applicable to valuing the subject Business. In order to arrive at a supportable value, the Appraiser will chose those methods that would best apply to the purchase of the subject Business as reflected by the marketplace.
The Internal Revenue service established Revenue Ruling 59-
1. History and Nature of the Business.
2. Economic Outlook.
3. Book Value.
4. Earning Capacity of the Enterprise.
5. Dividend Paying Capacity of the Enterprise.
6. Goodwill and Intangible Assets.
7. Recent Sales of Stocks.
8. Market Value of Comparable Companies.