Or maybe a friend of yours sold his business for a few million and is planning to live the life of leisure. In any case, you may be wondering how much your business is worth. The Kentucky Society of CPAs says before you dream of instant wealth, it s wise to obtain a reasonable and supportable valuation for your business. A valuation is the determination of the value of a company or an intangible asset on a specific date. They can be performed for a variety of reasons, ranging from mergers and acquisitions and marital dissolutions to insurance claims, tax disputes and damage litigation.
Valuations typically determine the fair market value of a company.
The Internal Revenue Service has defined fair market value as the price at which property would change hands between a willing buyer and a willing seller when the seller is not under any compulsion to sell, and both parties have reasonable knowledge of the relevant facts. There are a variety of valuation methods. The method used by CPAs and other professional valuators depends on the nature of the business and its capital structure as well as the purpose of the valuation. Other factors, such as the location of a business, case law precedent, and state and local statute can also influence the determination of value. However, there are a number of common factors that valuators will typically consider.