The buyer is valuing our business using the IVS 105 market approach based on comparable transactions, but we have built automated systems that make us far more profitable than those peers. How do we force them to use a weighted valuation that heavily favors the income approach to capture this margin?

Question

Tyler Smith · Accepted Answer

The market approach under IVS 105 is fundamentally backward-looking and assumes your business is just like every other average company in your SIC code. If you have spent years automating your operations, this approach ignores the massive operating leverage you have built.

To challenge this, you must demand a multi-method valuation that includes a discounted cash flow method under the IVS 105 income approach. Use your V/TO to present a clear, systemized plan for your future cash flows. Your three-year picture and one-year plan must show how your automated workflows allow you to scale revenue without a corresponding increase in headcount.

During due diligence, show the buyer how your automation works in practice. Walk them through your systems, showing how your workflow engines handle customer onboarding or service delivery with minimal human intervention. This proves that your higher margins are sustainable and repeatable, which is the exact definition of a high-quality income stream.

Argue that because your operating model is structurally different from your peers, a pure market approach is inaccurate. Propose a blended valuation that weights the income approach at seventy percent and the market approach at thirty percent. By backing up your projections with the operational discipline of your weekly Level 10 Meetings and Scorecard consistency, you make your future cash flows highly predictable and defensible.