Business valuation – reconciling the result

Take a look at a professional quality business appraisal, and you will notice that business value analysis is done three ways. These are called business valuation approaches: asset, income, and market.

In addition, you will spot a number of methods each valuation approach offers. Business appraisers include a number of such methods into their business value analysis.

You would hope that the results of all these valuation methods would come close. They usually do, but the numbers are not identical. Some differences are to be expected, but if one or two of the methods produce results that are way out of line with the rest, you should view it as a red flag. An error in business valuation is often lurking somewhere in the details.

While it is permissible to report business values as a range of numbers, most business people still prefer to see a single value. You can see in our business valuation report sample how the results of several methods are reconciled to produce a single opinion of business value.

You might say that a well considered conclusion of business value is why an appraiser gets paid the big bucks. Valuations that are well supported and carefully thought through should fall within a close value range of each other. A rule of thumb in the industry is that most business appraisers would come to within 10% of each other.

That 10% is still enough to encourage some business people to push for a result at one or the other end of the range. In this regard the overly aggressive clients should be admonished against getting carried away. If you push the appraiser to come up with a number and it gets challenged by an adverse party such as the tax authority or the court, you may be looking at a failed business valuation that loses all credibility.

See Valuation Tour