October 2021
While most users of business valuation reports are aware of the different Standards of Value, such as fair market value, fair value and liquidation value, few are familiar with Premise of Value. The International Glossary of Business Valuation Terms (Glossary) defines Premise of Value as “an assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation. The two most common Premises of Value are Going Concern Value and Liquidation Value. The Glossary defines Going Concern Value as the value of a business enterprise that is expected to continue to operate into the future. The intangible elements of Going Concern Value result from factors such as having a trained work force, an operational plant and the necessary licenses, systems and procedures in place. The Glossary defines Liquidation Value as the net amount that would be realized if the business is terminated and the assets are sold piecemeal. Liquidation can be either orderly or forced.
The chosen Premise of Value should reflect the actual circumstances applicable to the subject business. If the expectation is for a business to continue operating and not terminate in the foreseeable future then Going Concern Value may be a valid Premise of Value. Most importantly is for the Premise of Value to reflect the purpose of the business valuation. For example, if the purpose is to obtain a loan, then the premise of value that produces the highest value may be appropriate, assuming the Premise of Value constitutes the most likely transactional circumstance. Most often the value under a Going Concern Premise of Value will exceed that of a value under the Liquidation Premise as the Going Concern Premise includes intangible assets. However, with financially struggling businesses the opposite may be true.
Relevant Court Cases
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Pourmoradi v. Gabbai,
California Court of Appeals, Second District,
Fifth Division,
dated August 24, 2021
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Thielmeier v. Thielmeier,
Court of Appeals of Kentucky,
No. 2020-CA-0707-MR,
dated September 10, 2021
Recent Business Valuation Articles
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“Value of Internally Generated Intangible Capital,”
by Aneel Iqbal et al,
dated September 7, 2021
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“Why do M&A Advisors use Trailing Multiples?
Accounting Reports as Arbiters of Value,”
by Katherine Simeon Bruere and Matthew Shaffer,
dated September 10, 2021
Recent Engagements
- Valuation of non-voting common stock of a niche manufacturing
company on a minority interest basis for gift tax reporting purposes.
- Valuation of a limited partnership interest of a hotel holding
limited partnership and on a minority interest
basis for estate tax reporting purposes.
- Consulting regarding the common stock of a specialty
service firm on both a minority and a controlling interest
basis for planning purposes.
- Valuation of non-voting member interests
of a holding company on a minority
interest basis for gift tax reporting/sale purposes.





