Valuation - What to know

Stay cautious against fool's tricks

A skilled business valuer, well-versed in business sales, prepares compliant and purposeful valuation reports, aligned with the governing standards. 

In performing the task, the business valuer undertook a thorough independent investigation into:

  • The physical nature of the business and its external economic environment;
  • The valuer used the Financial Report and associated documents;
  • The valuer collected Non-Financial information using a checklist and proven processes
  • The valuer compiled evidence of recent business sales in the marketplace for the report;
  • The valuer decided upon and used valuation approaches and methods considered the most suitable to apply to the information available.

Thereafter, a sound, logical conclusion on the value of the business was reached in a formal Valuation Report.

Now, enter the other ‘business valuer’ – the hired gun to provide a pre-determined outcome beneficial for that person’s client.

The original report was selectively ‘cherry-picked’ for details. There was no investigation whatsoever. Then an ‘unknown’ method was applied to that carefully selected research beneficial to the client. 

The resultant calculated value in that second report was well beyond the outer limits of reality.

That business valuer was paid to produce a ‘Valuation Report’ that, in my view, was little more than a ‘sham’. The end result was the original Report prevailed and the Client lost money.

The Lesson:

Anyone can apply any mathematical formula to calculate the value of a business that is supportive of a pre-determined outcome – one that is beneficial to the individual engaging it.

But:

  • Does it represent reality?
  • Is it fit for purpose?
  • Does it comply with accepted Governing Standards?

Be aware there are four ‘tests’ that can apply to business valuation approaches and methods.

  1. Has it been tested and accepted by the Courts of Law?
  2. Is it accepted by the industry concerned?
  3. Is it accepted by financial institutions for lending purposes?
  4. Is it in an approved Textbook used by Internationally recognised Educational Institutions?

Choose your Business Valuer carefully before you make a costly mistake.