Closely Held Business Valuation (Portfolio 5147)


Nicholas Mastracchio, Jr.

Associate Professor

University of South Florida

Alina Niculita

Director of Valuation Services

Morones Analytics

At a glance

I. Introduction and Background
II. Standards and Premises of Value
III. Starting the Engagement
IV. Company Analysis
V. Business Valuation Methods
VI. Non-Operating and Excess/Deficient Operating Assets
VII. Discounts and Premiums
VIII. Valuation Reports
IX. Common Errors and Litigation Services


Bloomberg Tax Portfolio 5147, Mastracchio and Niculita, Closely Held Business Valuation (Accounting Policy and Practice Series), discusses the procedures and methodologies used by valuation specialists when they value a closely held business. Like other professionals, valuation specialists must follow professional standards when conducting valuations and issuing valuation reports. This Portfolio integrates the standards of the five primary professional valuation associations into its description of the procedures and methodologies for valuing closely held businesses.

The Portfolio explains best practices in creating an engagement letter and the issues a valuation specialist should consider at the inception of an engagement. It then explains how to evaluate a closely held business qualitatively by performing a company analysis, and how to evaluate the business quantitatively through the different types of valuation methodologies available. Specifically, it delves into the methodologies available under the three common valuation approaches — the market-based, earnings-based, and asset-based approaches. It also explains the premises of value — such as fair market value v. fair value.

The Portfolio discusses the often controversial topic of discounts and premiums. Because closely held businesses often have key personnel and are not readily valued in the marketplace, their values are frequently determined using discounts vis-à-vis the value of comparable companies whose value is more readily determined in the marketplace. The common discounts are lack of marketability, key person, and either trapped or built-in capital gains tax discounts. Moreover, when a noncontrolling interest is being valued, a lack of control discount may be appropriate and when a majority interest is being valued, a control premium may be appropriate. The Portfolio explains when such discounts and premiums are appropriate and discusses controversies in the courts concerning some of the discounts. A comprehensive discussion of case law involving these discounts and premiums is contained in the following tax portfolio — T.M. 831, Valuation of Corporate Stock.

This Portfolio discusses the various types of valuation reports and how the format of these reports differ under the standards of the five main valuation professional associations. Lastly, it explains common mistakes valuation specialists make when valuing closely held businesses and when testifying as expert witnesses in court.

This Portfolio may be cited as Bloomberg Tax Portfolio 5147, Mastracchio and Niculita, Closely Held Business Valuation (Accounting Policy and Practice Series).

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