Our tech-enabled services firm has minimal physical assets, and the buyer is pushing for a Cost Approach valuation. How do we leverage IVS 105 and Gross Substantial Value to force them to use an income-based multiple?

Question

Tyler Smith · Accepted Answer

Using the Cost Approach to value a tech-enabled services business is a classic buyer tactic designed to slash your enterprise value. Under IVS 105, you must select the valuation method that best reflects the nature of the asset. A services business is valuable because of its future earnings potential, not its physical liquidation value.

To counter this, you must present a valuation built on the Income Approach and Gross Substantial Value.

- Calculate your Gross Substantial Value by quantifying the replacement cost of your proprietary software, documented workflows, and institutionalized intellectual property.

- Demonstrate how your EOS operating system drives highly predictable, recurring cash flows that far exceed the physical asset base.

- Show the buyer that your systems are fully integrated and run by a leadership team structured on your Accountability Chart, proving the business has high capital efficiency.

By presenting a professional, data-driven analysis that proves your operational systems generate high margins, you force the buyer to abandon the Cost Approach. A business that generates high returns on low physical assets deserves an earnings-based premium, not a liquidation-style asset valuation.