Common Business Valuation Mistakes

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Jul 15

Common Business Valuation Mistakes

By KLR

On June 8th I was part of a panel discussion regarding various topics in Business Valuation. Unfortunately we were unable to cover one section of particular interest which discussed the common mistakes in business valuation. Here’s a list of some issues we’ve seen that can raise a red flag about a practitioner’s qualifications:

  1. Failure to specify what is being valued
    a. Stock?
    b. Assets?
    c. Controlling position?
  2. Confusing equity discount rates with invested capital discount rates
  3. Failure to properly understand how certain industry data is constructed and then improperly applying it in the valuation
  4. Poor selection of comparable data
  5. Using growth rates inconsistent with industry expectations
  6. Failure to read company operating agreements/shareholder agreements etc.
  7. Improperly normalizing financial statements
  8. Confusing earnings with cash flow
  9. Using data from a date later than the valuation date
  10. Not performing a reality check of the final result

With many moving parts, the process of valuing a company has numerous opportunities for error. If you’re planning to conduct a valuation, always check with a qualified valuation professional to be sure you’re not missing anything. Our valuation professionals frequently help guide owners through the valuation process free of charge so feel free to reach out!

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