Understanding the value of a business is complicated enough. Throw in partial ownership and the scenario gets even more complex. But at BizEquity, it’s been our mission to make the complex world of business valuation more manageable, scalable, and effective. And our latest release does just that.
Introducing our new Minority Interest Discount Module
In response to the recent changes from the Small Business Association and based on feedback from users, we recently released a new module that provides a more accurate calculation of business value, particularly in cases where there are minority owners with limited control over the company's operations.
Designed to help you gain a more accurate understanding of the true value of a business—particularly in cases where there are minority owners with limited control over the company's operations—the module takes into account two key factors:
- Discounts for Lack of Minority Interest
- Discounts for Lack of Control
What is a Discount for Lack of Control (DLOC)?
A discount for lack of control (DLOC) refers to a decrease in the value of a minority ownership interest in a business due to limited decision-making power and influence. Various factors, such as the absence of voting rights and limited influence on management decisions, can influence the extent of this discount. The specific determination of the discount depends on the specific circumstances of the business and the valuation methods employed. It is common to consider DLOC in conjunction with other valuation adjustments, such as a discount for lack of marketability (DLOM).
What is a Discount for Lack of Marketability (DLOM)?
A discount for lack of marketability (DLOM) pertains to a decrease in the value of an ownership interest in a privately held company due to the difficulties encountered in selling it through the open market. Privately held company interests are less easily converted to cash and pose more challenges when it comes to finding buyers, as opposed to publicly traded securities. DLOM accurately captures the lack of liquidity and marketability associated with these ownership interests.
The decision to apply one or both of these discounts depends on the specific circumstances of the ownership interest being valued, the characteristics of the business, and the purpose of the valuation, but the module allows you to use both or just one, depending on your needs.
For a more in depth look into the factors affecting both DLOC and DLOM, download our whitepaper.
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By including this module in our broader business valuation estimate, you gain a more comprehensive view of the company's overall worth and make more informed decisions about their investments. Log in to your whitelabel today and see how you can make even more accurate, on demand valuations for your clients.
