If you own a privately held business, you will likely encounter a situation where you need to know how much it is worth. Is your company a target for a strategic or financial acquisition? Are you setting up a succession plan that gifts ownership to family members? Do you need the fair market value for Employee Stock Ownership Plans (ESOPs) and 409A Compliance? Engaging experienced independent financial advisors, like the ones at Ahuja & Clark PLLC, can deliver customized valuation solutions.

This article will lay out the basics of the analysis we will perform when valuing your business. Under the standards of our practice, valuation advisors must consider three approaches to value, known as the Asset, Income, and Market Approaches.

Asset Approach

The Asset Approach, also known as the Cost Approach, principally uses the Adjusted Net Book Value method. This method goes line by line through your balance sheet and adjusts all assets and liabilities to market value. Adjustments are also made to include any valuable off-balance sheet assets. Usually, the value derived under the Asset Approach is a “floor value” for your company – the value that would be realized after liquidation of the company’s assets and satisfaction of the company’s liabilities. Valuing your business as a going concern (i.e. assuming the business will continue to operate) will usually end up deriving a greater value than the Asset Approach.

Income Approach

Under the Income Approach, the value of your going concern company is based on its future cash flows. The two most common methodologies under the Income Approach are the Capitalization of Earnings method and the Discounted Cash Flow method. The Capitalization of Earnings method utilizes a single period of normalized cash flow. The Discounted Cash Flow method, on the other hand, models out successive years of future cash flow. In both methods, the valuation advisor will use mathematical formulas and scientifically derived discount rates to estimate your company’s present value.

Market Approach

Under the Market Approach, a valuation advisor searches databases of guideline public companies and private market transactions for the prices of comparable assets. The valuation advisor filters and adjusts the data to develop multiples (such as price-to-revenue or price-to-EBITDA) which can be used to compute your company’s value.


All three methods must be reconciled by the valuation advisor, who will then go on to apply any relevant discounts to the subject interest before arriving at a concluded estimate of value. Ahuja & Clark’s Certified Public Accountants and Certified Valuation Analysts are qualified and experienced to assist you in understanding the approaches used in your valuation engagement, for whatever your needs may be. If you have questions regarding this topic, please reach out to us at (469) 467-4660, or info@ahujaclark.com.