The Art of Business Valuation

Preface

My father was the CEO of a $750,000,000 revenue general contracting firm when he retired 25 years ago. With 20 jobsites under construction, he was king of just knowing where the problem was––and getting someone to solve it––before it became a threat to the company. After all, large general contractors work on 5% or less gross profit. One “bad” job can wipe out a year's profits. Excelling in this environment, one of his favorite maxims was: “I would rather be approximately right than perfectly wrong.”¹

His maxim came out of jobsites full of technical engineers who each solved their system problems perfectly but with no regard for how the building as a whole would work. All too typical were pipes that were shown running through the structural steel that held the building up. What made this more difficult was the fact that often there was nowhere else for the pipes to go. This was offset by the more practical guys in the field who had to make it all work.

This tension between technical perfection and seeing the big picture still exists today in construction and it also exists in business valuation. It is all too easy to get lost in technical details. After all, business valuators tend to be technical people with extensive technical training. Being able to work between these two worlds––the technical and the practical––is the art of contracting for my father and the Art of Business Valuation for us.

In most approaches to business valuation, an equation or model is created ...