Business valuation is a matter of considerable judgment, based on experience, and utilizing approaches that vary a great deal from one industry to another, under one set of circumstances and another, and for one purpose and another. Invariably, experienced practitioners have found that canned "formula" approaches tend to omit consideration of some variables and distort the appropriate consideration of others, leading to unreliable values.
While Howard makes many good points, it is heroic to the point of being highly misleading to the less sophisticated of your readers to purport that a four-page article presenting a formula approach can be a panacea to "establishing an accurate valuation of your business."
Mr. Howard replies: Not long ago I analyzed 10 consecutive Tax Court cases reported in Valuing A Company, by George D. McCarthy and Robert E Healy (John Wiley & Sons, Hew York, 1971). The closest spread between appraisals used by defendants and the Internal Revenue Service was 54%, the widest 8,523%. I did not offer my method as a panacea, but when it is appropriate and the approach is followed carefully and objectively, the method is likely to be accurate within 5% to 10%.