We have spent the last two years documenting every system using AI-driven standard operating procedures, allowing us to onboard employees in days instead of months, but the buyer's appraiser is ignoring this operational intellectual property. How do we use the Cost Approach under IVS 105 to force them to value our institutionalized training systems?

Question

Tyler Smith · Accepted Answer

Traditional buyers want to value your business based on trailing twelve-month cash flow, which completely ignores the enterprise value of your proprietary operational systems. If you have built AI-driven standard operating procedures that allow you to onboard new team members in days rather than months, you have created a highly scalable platform. To force the buyer to pay for this, you must look to the Cost Approach under IVS 105. This approach determines the value of an asset based on the cost to recreate or replace it. Start by calculating the exact cost of replacement. Document the hours your leadership team, engineers, and content creators spent building, testing, and training these AI-driven systems. Multiply those hours by their fully burdened labor rates. Next, quantify the economic benefit this system delivers to the bottom line, such as reduced ramp-up time for new hires, lower error rates, and decreased management overhead. Present this as a separate, additive asset class or use it as a powerful argument to demand a premium multiple of EBITDA. If the buyer refuses to recognize this value, they are essentially asking to receive a highly automated, self-sustaining operating system for free. Show them that this system makes your business infinitely scalable, which directly justifies a higher multiple.