Business Life Insurance 13 - What Is Fair Market Value?
There are several variations of the description of F.M.V. (fair market value) is defined.
Fair market values are the highest price that a willing payer will pay in open market to a willing buyer, both being informed of the qualities of the property concerned and both parties are not under pressure to conclude the transaction. Beware if the buyer is not aware of some aspects of the business or if the seller is under pressure to sell, then the price could very well differ than the settle price.
What is the best way to determine the F.M.V.?
1. Both parties need to agree on the present day value.
2. Willing to adjust to reflect the changing nature of the business at agreed upon interval.
3. Obtain a present day value by the services of a professional evaluator. With their investigation and experience, a value could be established that would, amongst other considerations, include the following:
a) The business assets.
b) Past performance obtained from the Financial Statements of the business
c) Future potential of the business.
d) Human resources in the company.
e) The fair market value of comparative companies.
f) The industry in particular and the economy in general.
g) Nature of such business.
h) Assets: a comparison book value, adjusted book value and forced sale value.
i) Combination of Assets and Earnings: a going concern evaluation combined with assets and an estimate of the goodwill value.
j) Earnings Capitalization: earnings multiplied by a number of years
and the other factors such as interest rates, financing, available markets, etc.
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