I have been in business for 25 years. My business has a positive cash flow of $100,000 per year. If I want to determine the company’s value, couldn’t I merely multiply the cash flow by 5 to determine the value?

Q: I have been in business for 25 years. My business has a positive cash flow of $100,000 per year. If I want to determine the company’s value, couldn’t I merely multiply the cash flow by 5 to determine the value?

A: No. The IRS does not recognize any multiple or series of multiples to achieve a value that is accurate and reliable. Valuation is a complex procedure that requires hours of professional time. Only then can a value be determined. Also, attempting to value a business under an arbitrary multiple could result in a tremendous loss of value to the owner of the business upon transfer of the business because the value may be far greater than what the multiple suggests.