The National Directory of Certified Public Accountants

Ask A CPA - Buying & Selling a Business

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

Valuing a business is a tricky process with the end result being to ascertain the fair market value. Fair market value is the amount at which the property would change hands between buyer and seller when neither are under compulsion to buy and when both have reasonable knowledge of relevant facts concerning the business. The Market Approach is a way to determine a value indication of a business, business ownership interest or security by comparing the entity to similar entity's that have been sold. Most small businesses finding a similar business that has been sold or finding a publicly traded company that was sold and similar in many ways to the entity is generally very challenging and difficult. The principal business or professional activity code number on the entity's tax return is a place to start in trying to find a company within the same industry as the business being valued. The Internet can be used to search and locate the Annual report 10k of a public company. The Annual report 10K statement discloses many of the ratios that should be compared to the entity being valued. 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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