How is an LLC's value determined?
Through three recognized approaches: income (discounted cash flow or capitalization of earnings), market (comparison to private transactions and guideline companies using revenue, EBITDA, or SDE multiples from databases such as DealStats and PitchBook), and asset-based (net assets minus liabilities). The weighting depends on the company's earnings profile and the purpose of the appraisal.
Does our buy-sell agreement price count as fair market value?
Not automatically. Fixed-price clauses control transfers among members, but courts and the IRS can disregard stale or non-arm's-length pricing for tax, divorce, and litigation purposes. When the triggering event requires market-based evidence, an independent appraisal is still needed.
Why are the LLC's financials normalized before valuing it?
Because reported figures often differ from economic earnings. We adjust for owner compensation, personal expenses run through the business, one-time legal or litigation items, and nonrecurring revenue so multiples and projections apply to a realistic earnings base; skipping this step materially misstates value.
Which IRS filings commonly require an LLC valuation?
Gift tax Form 709, generally due April 15 of the year after the gift, and estate tax Form 706, generally due nine months after death with a six-month extension available. These valuations must support fair market value under the IRS framework, which specifically references Revenue Ruling 59-60.
Should my LLC be valued on an SDE or EBITDA multiple?
SDE-based multiples fit smaller owner-operated companies; EBITDA-based multiples fit larger or professionally managed firms. Public-company multiples, private transaction data, and industry deal databases are not interchangeable either, since control, liquidity, and growth assumptions differ, and mismatching them creates major distortions.