Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hi and welcome to Just Answer!
Common valuation methods for businesses include:
Market-based valuation. - based on past experiences selling similar businesses. The broker may recommend an asking price based on the sale prices of similar businesses in the same area or industry. It is quick, inexpensive and it's common practice for the sale of small businesses.
Asset-based valuation. - based on the book value and liquidation value of the business. These are considered bare minimums in business appraisals.
Earnings-based valuation. - based on historical financial figures, including debt payments, cash flows (past, present and projected) and revenues.
Same methods may be used to valuate software business.
All types of valuations are often combined for a more inclusive appraisal. You may use professional appraisers - http://www.allbusiness.com/buying-exiting-businesses/selling-a-business-valuations/8171-1.html
There is no easy way to appraisal a business - every business is unique and often depends on specific individuals. Valuation methods above are a generic approach in determining the value.
For Earnings-based valuation the typical past period for small businesses - three years, but what is more important - to have steady growth in revenue, cash flow and income. For projected figures it is important to have supporting documents like contracts, new products, etc.
Please be aware that posts on Just Answer are for general information, and are not intended to substitute for informed professional advice, and do not establish a professional-client relationship. If you need an appraiser - you need to look in local business directories.
Let me know if you need any help or clarification.
If you want me to determine the fair market value of your software - that is not possible.
I may only give you direction how to do that.
According to the IRS - fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
So generally to determine FMV of the asset - it should be sold on the open market.
If you do not sell your asset - the only way to estimate FMV is to perform an appraisal.
As I mentioned above - there are three common valuation methods used for appraisals.
You either do the appraisal on your own or hire a qualified appraisal.
There is no magic - someone has to do the job.