The Holy Grail of a Valid DLOM

, By Hans P. Schroeder

This isn't it, but this new method is a step in the right direction

By Hans P. Schroeder

Business valuation analysts have been frustrated for years trying to arrive at a reasonable, plausible, defensible and supportable discount for lack of marketability (DLOM). After spending hours studying and adjusting financials, analyzing market data, calculating ratios, writing text, and calculating valuation methods, it is highly unsatisfying for the analyst to simply deduct some more or less arbitrary percentage for lack of marketability.

There are several commonly used methods for estimating an appropriate discount, none of which are wholly satisfactory: Judges often don't like them, the Internal Revenue Service doesn't like them, and clients don't like them. Appraisers, of course, have widely varying opinions as to which is best.

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