Small business owners always have questions about company valuation issues: one of the main questions is "what is fair market value?" Fair market value as a term has many meanings. As a term in business valuation it has a specific meaning.
Fair market value defined as an amount at which property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and each having reasonable knowledge of the relevant facts.
So does this answer your question of what is fair market value? Well, probably not. Most people want to know in terms of dollars what a company is worth. Fair market value is really a valuation concept and a way to value ALL companies, not an equation to figure out the dollar value of one individual company.
In normal business terms fair market vale is the value someone will pay for a company, when they have no knowledge of the how to run the business or the industry -- essentially a 3rd party unrelated investor or possibly a venture capital investor.
Fair market value is the value of a company when they do not have to sell, if there was a need to sell quick it would be liquidation value.
Fair market value is determined by taking a close look at the historical and projected cash flows of the company, the assets and liabilities, as well as the potential growth of the industry or economy -- and all factors particular to the company in order to determine the dollar value. There could be discounts for lack of control and lack of marketability- depending on the situation.
This is NOT the value of a company where one party is a strategic investor or has extreme knowledge of the industry or business sector -- that would be investment value.
Fair market value is a term business valuation experts, CPAs and appraisers use in their reports which has a very specific meaning -- it is the value of your company on the open market.
If you own a small business and would like to learn more about business valuations, how to sell your company, how to value a company, or how to find a qualified business valuation expert, give us a call at (314) 541-8163 or check out our additional videos at http://www.YouTube.com/businessvaluationstl