Fair Market Value
Fair Market Value (FMV) is what the Internal Revenue Services Regulation 20:2031.1-1(b) defines as: "Fair Market Value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts." It is the value that professional valuation companies, looking at the market, and considering many factors about the particular business and the industry as well as the economy, expect a reasonable prospective buyer or an investor to pay. It is the price that the business should expect to bring, if it were sufficiently and effectively exposed for sale in the marketplace for a reasonable amount of time.
After the required financial information is gathered, it must be recast. Understandably, most small businesses suppress profits, thereby suppressing taxes. When this occurs, their financial records do not reflect their true earning power. For example, owners of small businesses often reward themselves with benefits, which increase expenses and reduce profits. Recasting removes all direct and indirect owner related benefits. The result of this process is a value referred to as seller discretionary cashflow or owner benefit. We identify the best possible price range for your business. This is based on solid facts, the condition of the market, projected growth, sales potential and the sale of similar businesses within your industry. We apply sophisticated, time proven valuation techniques to ensure that your price is appropriate for the current market condition. The price must not be too high or too low. Yet, it must represent an attractive investment potential.