IRS Provides Roadmap on How to Value a Private Business

Revenue Ruling 59-60 is a landmark piece of IRS guidance that outlines the factors to consider when estimating the fair market value of a private business. Here’s an overview of those factors, along with other hidden details found in the ruling’s fine print. 8-factor approach Revenue Ruling 59-60 says that business valuation is an inexact science, often resulting in “wide differences of opinion” about the value of a particular business interest. Therefore, valuation professionals use a customized approach that considers the following eight factors: 1. The nature and history of the subject company, 2. The outlook for the general economy and industry, 3. Book value and financial condition (from at least two years of balance sheets), 4. Earnings capacity (from at least five years of income statements), 5. Dividend-paying capacity (as opposed...