When it comes to non-profitable businesses, the Liquidation Appraisal Method is used. For this method, only the value of the tangible assets is used. The reason behind this is the buyer is only purchasing the tangible assets.
Any liabilities of the business entity are the responsibility of the seller and are not factored into the appraisal valuation since the buyer is not buying the business, but just the tangible assets. When the value of the assets are calculated using the Liquidation Appraisal Method, it is assumed that they are being sold in an orderly selloff and not under any duress in the form of a fire sale.
