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Closely Held Business Valuation in 2026: Methods, Discounts, & When You Need One

Quick Answer

Christoph Totter · Managing Partner, CT Acquisitions

M&A advisory across 500+ active capital partners · Closely held / family business valuation methodology · Updated June 6, 2026

A closely held business, one with a small number of owners and no public market for its shares, is valued using the same three approaches as any business: the income approach (discounted cash flow), the market approach (normalized SDE or EBITDA times a comparable-transaction multiple), and the asset approach (adjusted net asset value), reconciled to a value or range. What’s distinctive about closely held businesses is the heavy use of discounts: a discount for lack of control (DLOC, typically 10-25%) when valuing a minority interest, and a discount for lack of marketability (DLOM, typically 15-35%) reflecting that there’s no ready market for private-company shares, combined, often 20-40%+. The standard of value (fair market value, fair value, or investment value) and whether discounts apply depend on the purpose: estate/gift tax and divorce valuations usually apply discounts; some statutory ‘fair value’ standards don’t. You need a certified valuation from a credentialed appraiser (ASA, ABV, CVA) for tax, divorce, ESOP, shareholder disputes, certain SBA loans, and litigation; for a sale, a free market estimate is enough.

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Closely held businesses, the privately owned companies that make up most of the economy, are valued by the same methods as any business, but with a twist: the discounts. Because there’s no public market for the shares and a minority owner can’t control distributions or a sale, closely held interests are routinely valued below their pro-rata share of enterprise value, sometimes 20-40% below. This page covers how a closely held business is valued, why the discounts matter, when they apply, and when you need a certified valuation.

We are CT Acquisitions, an M&A advisory firm working both sides of the table, not a credentialed appraisal firm. This is general orientation; engage a credentialed appraiser for a certified valuation. For a free market check before a sale, use our 90-second valuation tool.

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What this guide covers

Same three approaches as any business: income (DCF), market (multiple), asset (adjusted net asset value), reconciled to a value or range
Distinctive feature: discounts. Lack of control (DLOC, ~10-25% for minority interests) and lack of marketability (DLOM, ~15-35%), combined often 20-40%+
Whether discounts apply depends on the purpose. Estate/gift tax and divorce valuations usually apply them; some statutory ‘fair value’ standards don’t
The standard of value (fair market value, fair value, or investment value) is set by the purpose and, for divorce and dissenting-shareholder matters, the jurisdiction
You need a certified valuation for: tax, divorce, ESOP, shareholder disputes, certain SBA loans, litigation
For a sale, you don’t need a certified valuation, a free sector-adjusted estimate or a sell-side advisor’s indicative valuation is enough

What the valuation of a closely held business really means

The valuation of a closely held business is the process of establishing what a company with no public market for its shares is worth, using earnings, assets, and comparable private transactions rather than a stock price. Because there is no daily quote to point to, the number depends on the standard of value, the purpose, and the discounts that apply to a stake nobody can sell freely.

A closely held business is one whose ownership sits with a small group, often a founder, a family, or a handful of partners, and whose shares do not trade on any exchange. That single fact drives everything about how you value it. There is no market price to anchor to, so an appraiser rebuilds value from the inside: normalized earnings, the assets on the balance sheet, and what similar private companies have sold for. The three approaches later on this page put numbers to each of those angles.

The valuation of a closely held business also turns on why you are asking. A number built for an estate filing, a divorce, a buy-sell agreement, or a sale to a third party will differ because the standard of value differs. Fair market value, fair value, and investment value each answer a slightly different question, which is why the purpose has to be fixed before any math begins.

The last piece is what makes closely held valuation distinctive: the discounts. A minority stake that cannot control decisions, and an interest that cannot be sold quickly, are both worth less than a clean controlling share of a public company. Those adjustments, covered in the discounts section below, are often the difference between a defensible number and a wishful one. If you are weighing a sale rather than a filing, our sell your business guidance walks through how these same drivers translate into a real offer.

The three approaches, applied to a closely held business

CT Acquisitions · 2026 Methodology Signal

What Closely Held Owners Need to Know About Valuation Discounts

Across our valuation work for closely held businesses in 2026:

DLOM is the larger discount component for most closely held interests. 20-40% lack-of-marketability discount applies even to majority interests in private companies.
DLOC scales inversely with control. 1% interest gets max DLOC; 49% interest gets minimal DLOC because of strategic optionality (block-and-tackle).
Valuation purpose drives discount magnitude. Estate / gift valuations compress discounts (IRS scrutiny); divorce and ESOP valuations apply broader ranges. Document context.

Multiple at a Glance · 2026

Closely Held Valuation Discounts · 2026

Typical DLOC and DLOM ranges.

Total combined discount (DLOC + DLOM)30-55%

Discount for Lack of Marketability (DLOM)20-40%

Discount for Lack of Control (DLOC)15-30%

Source: CT Acquisitions analysis. Discount magnitude depends on minority size, transferability restrictions, dividend policy, and valuation purpose (estate, gift, divorce, ESOP).

Related Cluster GuideFor the companion explainer on goodwill in business valuation (critical in closely held PPAs), see our reference.

Income approach (discounted cash flow): project the business’s future free cash flows, discount them to present value at a risk-adjusted rate (often higher for a closely held business than for a public company, reflecting greater risk and less liquidity), add a terminal value. Most useful for closely held businesses with predictable cash flows and a credible forecast; for smaller closely held businesses, often used to sanity-check the market approach.
Market approach (multiple): take normalized SDE (for smaller owner-operated closely held businesses) or normalized EBITDA (for larger ones with a management layer), multiply by a multiple derived from comparable closely held transactions in the same industry and size band, then adjust for the business’s specific risk profile. The most commonly used approach for closely held businesses.
Asset approach (adjusted net asset value): restate the balance sheet to fair market value, equipment and real estate to appraised value, inventory to realizable value, then subtract liabilities. Usually a floor for an operating closely held business; the primary method for holding companies, asset-heavy businesses, or unprofitable ones.

A credentialed appraiser considers all three, weights them based on the business’s characteristics, and reconciles to a value or range, then applies discounts where appropriate.

The discounts that make closely held businesses distinctive

Discount	What it reflects	Typical range	When it applies
Discount for lack of control (DLOC)	A minority owner can’t direct distributions, sell the company, change management, or set strategy, so a minority interest is worth less than its pro-rata share of enterprise value	~10-25%	When valuing a minority (non-controlling) interest
Discount for lack of marketability (DLOM)	There’s no public market for closely held shares, so the interest is hard to sell to anyone other than existing owners, applies to both minority and (to a lesser degree) controlling interests	~15-35%	Almost always, for closely held interests, larger for minority interests
Key-person discount	If the business depends heavily on one or two key people, a buyer discounts for the risk of their departure	Varies (~5-25%)	When applicable; can also be reflected in the multiple or cash-flow projection instead
Built-in gains discount	For C corporations holding appreciated assets, a discount for the embedded tax liability	Varies	For asset-approach valuations of C corps with appreciated assets

Combined, DLOC and DLOM often total 20-40%+ for a minority interest in a closely held business. This is why a 30% stake in a closely held business with $1M of total equity value might be appraised at $180K-$240K rather than $300K. Important: the discounts depend on the standard of value and the purpose, some ‘fair value’ statutes (used in dissenting-shareholder and some divorce matters) don’t permit marketability or minority discounts, producing a higher number.

How the IRS approaches the valuation of a closely held business: Revenue Ruling 59-60

For estate, gift and many other tax purposes, the valuation of a closely held business follows IRS Revenue Ruling 59-60. It defines fair market value as the price between a willing buyer and a willing seller, both informed and neither forced to act, and lists eight factors an appraiser must weigh because closely held shares have no market price.

The IRS published Revenue Ruling 59-60 for valuing closely held corporate stock, and appraisers, courts and the IRS still use its framework for most closely held interests. Its eight factors are:

The nature of the business and its history since it started.
The economic outlook in general, and for the specific industry.
The book value of the stock and the financial condition of the business.
The earning capacity of the company.
The dividend-paying capacity of the company.
Whether the business has goodwill or other intangible value.
Prior sales of the stock and the size of the block being valued.
The market prices of comparable companies whose stock trades publicly.

The ruling does not give a formula. It tells the appraiser to weigh the factors according to the business: earnings carry the most weight for an operating company, asset values for a holding or investment company. Factor seven is where control and marketability discounts come from, because a small block of unlisted shares is harder to sell than a controlling stake.

Two related federal rules matter in practice. First, a price set in a buy-sell agreement only binds the IRS for estate tax if it meets the tests in IRC Section 2703: a bona fide business arrangement, not a device to pass shares to family below full value, with terms comparable to arm’s-length deals. Second, a gift of closely held shares reported with a qualified appraisal that meets the IRS adequate disclosure rules starts the statute of limitations, which protects the value from later challenge. If a sale to an outside buyer is the goal instead, see the section below on when a certified valuation is needed.

The standard of value, and why the purpose matters

Fair market value: the price between a hypothetical willing buyer and seller; typically applies the discounts. Used for estate and gift tax, many divorce matters.
Fair value: a statutory standard used in some states for dissenting-shareholder actions and some divorce matters, which may not permit marketability or minority discounts, producing a higher number.
Investment value: value to a specific owner; used in some jurisdictions, can reflect the value the business has specifically to a particular party.
Strategic / synergistic value: what a particular strategic buyer would pay given synergies; relevant in a sale context, not in tax or fair-value valuations.

The same closely held business can have meaningfully different appraised values depending on which standard applies, which is set by the purpose and, for divorce and dissenting-shareholder matters, the jurisdiction.

When you need a certified valuation of a closely held business

Estate and gift tax, gifting or inheriting closely held shares; the IRS can challenge the value (and the discounts); you need a ‘qualified appraisal’.
Divorce, the closely held business is often the largest marital asset.
Shareholder or partner disputes / buyouts, dissenting-shareholder actions, buy-sell triggers, partner exits.
ESOP formation and annual updates, ERISA/DOL require an independent appraisal.
SBA financing above a threshold, SBA rules require an independent valuation.
Litigation, damages, breach, dissenting shareholders.
Certain tax elections, C-to-S conversion built-in gains, etc.

For simply selling a closely held business, you usually don’t need a certified valuation, you need a market-grounded expectation and a competitive process. A sell-side advisor’s indicative valuation or our free tool is typically enough. Note that in a sale, the discounts typically don’t apply the way they do in a tax or fair-value valuation, a buyer of the whole business is buying control, and a strategic buyer may even pay a premium for synergies.

How we know this: the ranges, timelines, and patterns on this page reflect the transactions we work on and the buyer mandates in our network of 500+ active capital partners. They are informed starting points, not guarantees, your actual outcome depends on the specifics. For a sector-adjusted estimate, use our free 90-second valuation tool.

For a Sale, This Is Enough

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About the Author

Christoph Totter is the founder of CT Acquisitions, an M&A advisory firm working both sides of the table, headquartered in Sheridan, Wyoming. We work directly with 500+ buyers, search funders, family offices, lower middle-market PE, and strategic consolidators, including direct mandates with the largest consolidators that other intermediaries cannot access. No fee to you on buy-side introductions; sell-side mandates are paid on success at closing. Connect on LinkedIn · Get in touch

Closely Held Business Valuation: Frequently Asked Questions

How is the valuation of a closely held business different from a public company?

A public company has a share price the market sets every day. A closely held business has none, so its value is built from normalized earnings, asset values, and comparable private sales, then adjusted with discounts for lack of control and lack of marketability that public shares do not carry.

How is a closely held business valued?

Using the same three approaches as any business, the income approach (discounted cash flow), the market approach (normalized SDE or EBITDA times a comparable-transaction multiple), and the asset approach (adjusted net asset value), reconciled to a value or range. What’s distinctive is the heavy use of discounts: a discount for lack of control (DLOC, ~10-25%) for minority interests and a discount for lack of marketability (DLOM, ~15-35%), combined often 20-40%+. The standard of value (fair market value, fair value, or investment value) and whether discounts apply depend on the purpose.

What is a discount for lack of marketability?

A reduction in the value of a closely held business interest reflecting that there’s no public market for the shares, so the interest is hard to sell to anyone other than the existing owners. It’s distinct from the discount for lack of control (which reflects a minority owner’s inability to direct the company). DLOM typically runs 15-35% and applies to both minority and (to a lesser degree) controlling interests in closely held businesses. Some statutory ‘fair value’ standards (used in dissenting-shareholder and some divorce matters) don’t permit it.

Why is a minority stake in a closely held business worth less?

Two reasons: a discount for lack of control (a minority owner can’t direct distributions, sell the company, change management, or set strategy, so the interest is worth less than its pro-rata share of enterprise value, typically a 10-25% discount) and a discount for lack of marketability (no public market for the shares, hard to sell to anyone other than existing owners, typically a 15-35% discount). Combined, often 20-40%+. So a 30% stake in a closely held business with $1M of equity value might be appraised at $180K-$240K rather than $300K. The discounts depend on the standard of value, some ‘fair value’ standards don’t permit them.

What standard of value applies to a closely held business?

It depends on the purpose. Fair market value (the price between a hypothetical willing buyer and seller, typically applying discounts) is used for estate and gift tax and many divorce matters. Fair value (a statutory standard that may not permit marketability or minority discounts, producing a higher number) is used in some states for dissenting-shareholder actions and some divorce matters. Investment value (value to a specific owner) is used in some jurisdictions. The standard is set by the purpose and, for divorce and dissenting-shareholder matters, the jurisdiction, and it materially affects the result.

Do the discounts apply when selling a closely held business?

Usually not the way they do in a tax or fair-value valuation. A buyer of the whole closely held business is buying control, so the discount for lack of control doesn’t apply, and a strategic buyer may even pay a premium for synergies. The discount for lack of marketability is also less relevant in an actual sale (the sale itself provides the liquidity). The discounts matter most when valuing a minority interest for tax, divorce, or dispute purposes, not when selling the entire business on the open market.

Do I need a certified valuation of my closely held business?

For tax (estate/gift), divorce, shareholder or partner disputes and buyouts, ESOPs, certain SBA loans, and litigation, yes, those require a credentialed appraiser (ASA, ABV, or CVA) producing a formal report that will withstand scrutiny (including IRS challenges to the discounts). For simply selling the business, no, a free sector-adjusted estimate or a sell-side advisor’s indicative valuation is enough, the actual price is set by what buyers will pay through a competitive process.

How much is my closely held business worth?

If you’re selling the whole business: roughly normalized SDE times 2x-4.5x for smaller owner-operated businesses, or normalized EBITDA times 4x-8x+ for larger ones with a management layer, adjusted for recurring revenue, customer concentration, owner dependency, growth, and margins, with no minority/marketability discounts (a buyer is buying control). If you’re valuing a minority interest for tax, divorce, or a dispute: that pro-rata value, minus discounts for lack of control (~10-25%) and lack of marketability (~15-35%), so meaningfully less. Use a free sector-adjusted estimate for the sale scenario; use a credentialed appraiser for the minority-interest scenario.

What’s the difference between fair market value and fair value for a closely held business?

Fair market value is the price between a hypothetical willing buyer and seller, neither under compulsion, both informed, and it typically applies discounts for lack of control and lack of marketability when valuing a minority interest. Fair value is a statutory standard used in some states for dissenting-shareholder actions and some divorce matters, which may not permit those discounts, producing a higher number for a minority interest. Which standard applies is set by the purpose and the jurisdiction, and a credentialed appraiser determines it as the first step of the engagement.

What is Revenue Ruling 59-60?

Revenue Ruling 59-60 is the IRS guidance on valuing closely held stock for estate and gift tax. It defines fair market value as the price between an informed, willing buyer and seller and lists eight factors to weigh, including the company’s history, industry outlook, book value, earning capacity, dividend capacity, goodwill, prior stock sales and comparable public companies. Appraisers still use it for most closely held interests.

How does a buy-sell agreement affect the value of a closely held business?

A buy-sell agreement can fix the price at which owners must sell their shares, but for federal estate tax that price only holds if the agreement meets IRC Section 2703: it must be a bona fide business arrangement, not a device to transfer shares to family for less than full value, and comparable to arm’s-length terms. Otherwise the IRS values the shares at fair market value, ignoring the agreement’s price.

Do I need to worry about estate tax on a closely held business?

Only if your estate is large. Under the One Big Beautiful Bill Act, the federal estate and gift tax exclusion is $15 million per person from 2026, made permanent. Owners above that level, or in states with their own estate tax, need a defensible valuation of the closely held business, and the discounts for lack of control and marketability can change the tax owed significantly.