Same Facts, Different Answers: How to Get the Best Company Value

When I was just starting my career in business valuation, I attended an education class with about 200 other valuation professionals. We were given a case study – Same Facts – and we all came up with a different valuation conclusion – Different Answers. The most surprising observation for me was that these differences were not small. In some cases, the valuations differed wildly.

Client Skepticism

In my experience, there is a lot of client angst around business valuation.

First, clients feel like they’re being judged – someone is scrutinizing the place where they spend the majority of their time, effort and resources.

Second, most clients first query their networks, including friends, other professionals in their field, their CPA, and their attorney to ask them about the value of their business. Undoubtedly, they hear widely differing opinions. As a result, when I speak with business owners, they often say and use terms like “black box”, “more art than science” and “only an actual buyer can tell me the value of my business.“

As a 20+ year veteran in the industry, I can assure you that there is a fundamental structure in determining the value of a business. So why is it that you can still get a group of valuation experts in a room with the same facts and still get different answers?

Access to Data

Not all valuation experts use the same tools and databases.

Within the valuation profession, there are different tools to access publicly traded data, mergers and acquisition data, industry-specific data, economic data, studies for discounts for lack of control and lack of marketability. The reality is that these data sources are expensive. Quist Valuation invests more than $100,000 per year to utilize and access all of the best tools to provide our clients with comprehensive business valuations.

Availability of Management for Interviews

There are some insights that the financial statements alone just can’t tell you. Sitting down with management teams to gain a greater understanding of a company’s history, operating objectives, market position and strategies is essential to the valuation process.

Management interviews provide context and the ability to integrate many different pieces of information. Quist utilizes management interviews particularly to create storylines for each company. These storylines allow us to effectively communicate ideas and themes with each other and our clients.

Differences in Approaches

There are three primary approaches to value: an Asset Approach, a Market Approach, and an Income Approach. However, each of these approaches can give widely different indications of value.

For example, a services company with very little hard assets indicates a significantly lower value under the asset approach than a products manufacturing company that carries inventory, machinery, and equipment.

Understanding the merits of each of the methods and when to apply them is dependent upon the facts and circumstance of each company. Quist applies each of the methodologies, explains their strengths and weaknesses as it pertains to the specific company, and weights them accordingly.

Experience

The experience piece is the “art” in valuation. It is the accumulation of knowledge from seeing and performing hundreds if not thousands of valuations.

It’s imperative to have an experienced, professional staff evaluating your business for the best value conclusion.  Quist’s 35-year history and dedication to institutionalizing our experience and knowledge allow us to use the same facts and come up with the best answers for your company.

Have questions about valuing your business? Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify the next steps needed to assess the value of your company.
Schedule your free 30-minute consultation here.