How do i calculate an illiquidity discount for a private company

Question

anonymous · Answer

I am assuming you mean illiquidity by the fact that owners cannot cash out or sell the business anytime they want. This is a hard one and finance research is still trying to figure it out. I am not sure how you would calculate the discount because you have to compare it to some other benchmark in order to see whether if it is discounted or not.

anonymous · Answer

There are a couple of methods.  I recommend you read "Business Valuation Discounts & Premiums" by Shannon Pratt for a good idea on the studies and approaches that are used.