Depending on the type of business, the valuation may use one or more approaches and methods. There are three approaches (asset based, income and market approach) and under each of them there are more than one method that can be applied. In most general terms, asset approach values tangible assets of the business separately from its goodwill, income approach values both these components together, and market approach relies on the analysis of data related to sales of similar businesses. Market approach is not used in divorce related valuations very often, mostly because of the insufficient data currently available with respect to sales of small privately owned businesses.
Both asset and income approaches use capitalization of all or part of the business income stream to arrive at the value of the business. This poses several challenges and requires various assumptions in order to overcome them, which creates a situation where two valuation analysts can arrive at vastly different business values while using the same financial data.