Common Business Valuation Mistakes
posted Jul 15, 2011 in the Business Blog
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:
Failure to specify what is being valued
c. Controlling position?
- Confusing equity discount rates with invested capital discount rates
- Failure to properly understand how certain industry data is constructed and then improperly applying it in the valuation
- Poor selection of comparable data
- Using growth rates inconsistent with industry expectations
- Failure to read company operating agreements/shareholder agreements etc.
- Improperly normalizing financial statements
- Confusing earnings with cash flow
- Using data from a date later than the valuation date
- 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!