The National Directory of Certified Public Accountants

Ask A CPA - Buying & Selling a Business

Within The Many Business Valuation Methods , What Is The Asset Approach ?

Valuing a business is a tricky process with the end result being to ascertain the fair market value of the business. Fair market value is the amount at which the property would change hands between the buyer and seller when neither are under compulsion to buy and when both have reasonable knowledge of relevant facts concerning the business. You can use the Asset Approach to determine a value indication of a business's assets and or equity interest. This method is based directly on the value of the assets of the business less liabilities. Goodwill is determines as total sales price minus the estimated assigned asset values. The asset approach is appropriate when the profits of a business are small in comparison to the assets employed to generate that business's profits. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

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