Putting it All Together

Value, however defined, is a range.

Business valuation is an inherently inaccurate process.

Business valuation is a due diligence process which results in an informed opinion.

The best evidence of market value is direct observation of the market place.

For profitable closely held businesses, there are only two types of market place observations which are possible. These are:

Direct observation: Using techniques such as the DMDM to value businesses under the market approach.

Indirect observation: Using information from the public markets to derive discount/capitalization rates for use in valuing businesses under the income approach.

For small to mid-size businesses, the DMDM, which utilizes the IBA Transaction Database, is a theoretically sound, practical, and relatively inexpensive appraisal method. Advantages include:

Direct market evidence from comparable businesses.

Relatively inexpensive information source.

Easily explained to non-professionals.

Can be used in a variety of ways and for a variety of purposes.
The more an appraiser uses the DMDM, the more he will appreciate its usefulness.