A Compensation-Based Method of Valuing Small, Closely Held Businesses

Often, individuals invest in small, closely held businesses to provide themselves with a higher-paying job than they could receive if they remained an employee. None of the currently accepted valuation methods, income, market, or asset, takes this fundamental motivation for higher compensation into consideration. The purpose of this paper is to describe those conditions in which owner compensation can create intangible value in a small, closely held business and suggest a practical valuation method when those conditions are present.