The Art of Business Valuation

CHAPTER 14How to Review a Business Valuation

I would rather be approximately right rather than perfectly wrong.

Does this make sense?

Namely, when looking at a business valuation, a sense of curiosity is the starting point of the Art of Business Valuation. A surprising number of times when carefully reviewing valuation reports, the answer to the question is no. This does not make sense.

Sometimes the value determined seems reasonable but the supporting facts and assumptions do not really add up. Other times the value calculated is just wrong. Most of us have read too many reports that seem quite “pretty” and thorough (or at least long) to find upon closer review that they are wanting in their logic, have unsound or incorrectly applied methodology, meaningless subjective weightings, unfounded or unexplained assumptions, and calculations that couldn't be replicated or just don't matter.

Clearly there are multiple levels and reasons to review a business valuation. The steps presented here can be used for internal pre-release checking of the valuation. They can also be used to review other valuators' valuations.

Humans (including analysts) can be swayed and begin to take sides and not even notice they are doing it. Another factor that plays into poor valuation estimates is lack of expertise. Combine a work product that requires many assumptions, multiple methodologies, and a huge variation of types of businesses and size ranges of businesses and it is easy to miss the mark and ...