Valuation Challenges Involving Closely Held Businesses

Description

The valuation of closely held companies often presents unique challenges for even seasoned accountants, attorneys and valuation professionals. The private nature of the business, difference in accounting processes from larger public entities, even the reasons for valuation, each contains specific complexities not found in valuation of publicly traded companies.

Whether the valuation is driven by financing requirements, shareholder disputes, merger activities, buy-sell agreements, tax liability issues, or other litigation can be a factor in determining what valuation approach to use. Advisers must be able to identify the appropriate methodologies to employ, based on the nature of the business or interest being appraised, as well as the purpose of the valuation. Additionally, advisers must factor in current and projected market conditions, as well as the marketability of non-controlling interests. Also, valuation professionals must recognize the impact of a minority discount for non-controlling interests in the closely held firm.

There are three primary valuation approaches in determining the worth of non-publicly traded companies. A critical determination for valuation professionals and those they advise is recognizing when to use the market approach, the income approach, or the adjusted balance sheet (or asset) approach. Often the approach is influenced by whether the valuation is being conducted for transactional, litigation, or planning purposes.

Listen as our experienced panel of valuation experts provides a practical guide to meeting the challenges of performing valuations on closely held businesses.