Title: Valuation of entrepreneurial businesses

Authors: Gerrit Brösel; Manfred J. Matschke; Michael Olbrich

Addresses: Lehrstuhl für Betriebswirtschaftslehre, insbesondere Wirtschaftsprüfung, FernUniversität in Hagen, D-98693 Ilmenau, Germany. ' Lehrstuhl für Allgemeine Betriebswirtschaftslehre und Betriebliche Finanzwirtschaft, insbesondere Unternehmensbewertung, University of Greifswald, Friedrich-Loeffler-Str. 70, D-17491 Greifswald, Germany. ' IWP Institut für Wirtschaftsprüfung, Saarland University, Campus, B 4.1, D-66123 Saarbrücken, Germany

Abstract: "A small business is not a little big business" (Welsh and White, 1981) - this also holds true for valuing small businesses. Such companies act in utmost imperfect markets, are generally unique and the forecast of their future profit is rather difficult. These characteristics impede the use of DCF and real option methods, as well as of multiples. Therefore, this paper presents the functional valuation theory as an alternative approach to valuation. Its partial and general models allow a better adaption to the characteristics of entrepreneurial businesses, especially when these models are combined with a Monte Carlo simulation.

Keywords: entrepreneurial businesses; company valuation; decision value; future earnings method; state marginal price model; discounted cash flow method; multiples; real options; functional valuation theory; entrepreneurship; small business; small firms; Monte Carlo simulation.

DOI: 10.1504/IJEV.2012.048595

International Journal of Entrepreneurial Venturing, 2012 Vol.4 No.3, pp.239 - 256

Received: 23 Sep 2010
Accepted: 24 Feb 2011

Published online: 17 Aug 2012 *

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