We need to look from market prospective. If you are a buyer - what would you pay for your business? - that would be the value.
Fair market value (FMV) is the price that the business 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.
When the business is not sold - we need to appraise it to determine the FMV.
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.
-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.
While you perfectly may perform such evaluation on your own - if that will be used fro litigation - it might be better to have that done by the appraiser licensed in your state
You may also use software
solution - this is just an example -
However - that will provide only a raw estimate. Just follow the procedure - and you will get a valuation report.
All types of valuations are often combined for a more inclusive appraisal. You may use professional appraisers -
There is no easy way to appraise a business - every business is unique and often depends on specific individuals
, customers, etc. Valuation methods above are a generic approach in determining the value.
As we are talking about a share in the partnership
- and there is no market to sell such interest - the FMV value is usually 10-20% lower than based on business appraisal.
Sorry if you expected a simple answer.
Let me know if any clarification needed.