The buyer wants to use the Liquidation Value method under IVS 105 because we are in a capital-intensive industry, but our true value is in our proprietary automated workflow. How do we force them to use the Income Approach?

Question

Tyler Smith · Accepted Answer

When a buyer attempts to use a balance sheet-based valuation like Liquidation Value, they are trying to buy your business for the scrap value of your physical assets while getting your operational cash flows for free. You must reject this approach immediately by demonstrating that your business is a growing, profitable, going concern. Under the IVS 105 framework, you must show that the Income Approach is the most appropriate method because your assets generate cash flows that far exceed their liquidation value. Start by calculating your Gross Substantial Value to show the replacement cost of your automated facilities, proving that rebuilding your operation from scratch would cost far more than their depreciated book value. Next, present your proprietary automated workflows as the driver of your superior operating margins. Use your EOS Scorecard to prove that these workflows consistently lower your operating costs and increase capacity without adding headcount. This operational leverage is an intangible asset that does not show up on a traditional balance sheet but directly drives your future cash flows. Propose a Discounted Cash Flow valuation under the Income Approach, using a defensible discount rate that reflects the stability of your automated operations. By focusing the negotiation on the earnings generated by your systems rather than the physical assets on your balance sheet, you force the buyer to value your business as an efficient cash-generating machine.