Valuation Company St. Louis: What are Valuation Discounts or DLOM?

Valuation Experts in St. Louis Missouri: There are some common questions business owners ask about valuation discounts when getting an appraisal of their company.

What is the discount for lack of marketability?

There are several valuation discounts, one of which is a discount for the fact that a privately held company is not easily salable. What this means is that a business owner cannot convert the shares of a family business or closely held company within a short period of time, like in the next three days.

For example if you owned a share of stock in a publicly traded company, you go on the open market such as the NASDAQ or the New York Stock Exchange, basically wherever the stock is actively traded, sell the stock and get cash to either invest in another stock or to use for other purposes.

When valuing a minority interest in a privately held company, and the company lacks marketability or the ability to sell quickly, a valuation expert would apply a discount. This discount is subjective but typically based on restricted stock studies and pre-IPO studies, as well as numerous other valuation resources.

The discount for lack of marketability or DLOM ranges from 5% to 40%.

This means that in order to determine the value of a person's interest in a company you would discount the value to represent the fact that it will take some time to sell the company and to account for the risk that the value of the company could decrease, or increase within that time period.

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