common mistakes in business valuation: how to connect the dots and avoid mistakes
TRANSCRIPT
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015 Copyright 2015 © All Rights Reserved
COMMON MISTAKES IN
BUSINESS VALUATION:
HOW TO CONNECT THE DOTS
AND AVOID MISTAKES
Moderated By:Brandi L. Ruffalo, MBA, AVA, CBA
Panelists:Marcie D. Bour, CPA.AVB, CVA, CFE, MAFF, ABAR
Robert Brackett, CGMA, CPA, CVA, ICVS, MM
Frank Rosillo, CPA/ABV, ABAR, CBA, CFE
September 25, 2015Brandi L. Ruffalo, MBA, AVA, CBA, Moderator
Valuation & Forensic Partners, LLC
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015Copyright 2015 © All Rights Reserved
THIS PRESENTATION WAS PREPARED FOR INFORMATIONAL AND DISCUSSION PURPOSESONLY. IT IS NOT DESIGNED TO PRESENT THE OPINION OF THE PRESENTER ON ANYMATTER DISCUSSED, BUT RATHER TO PRESENT INFORMATION THAT CAN BE USED IN ANEDUCATION SETTING AMONGST PEERS.
THEREFORE, THE MATERIAL PRESENTED SHOULD NOT BE RELIED ON AS LEGAL, ACCOUNTING, VALUATION, OR OTHER PROFESSIONAL ADVICE.
ANY CLIENT MATTERS DISCUSSED SHOULD BE CONSIDERED HYPOTHETICAL AND NOTDIRECTLY APPLICABLE TO ANY COMPANY PRESENTER OR PARTICIPANT HAS, MAY BECURRENTLY OR MAY IN THE FUTURE WORK ON.
EACH APPRAISER / EXPERT MUST USED INFORMED JUDGMENT IN SELECTING THEAPPROPRIATE DATA TO USE IN ARRIVING AT HIS OR HER VALUATIONCONCLUSION. THIS INCLUDES THE METHODOLOGY APPLIED AS WELL AS THESOURCES USED.
COPYRIGHT 2015, VALUATION & FORENSIC PARTNERS, LLC AND THE BUSINESS DEVELOPMENT COMPANY.
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015 Copyright 2015 © All Rights Reserved
AN UNINTENTIONAL ACT, OMISSION OR ERROR
…CATEGORIZED AS
MISTAKE OF FACT…WHEN A PERSON BELIEVES A CONDITION EXISTS
BUT IT DOES NOT
MISTAKE OF LAW…PERSON HAS KNOWLEDGE OF FACTS BUT IS
WRONG ABOUT LEGAL CONSEQUENCES
MUTUAL MISTAKE….WHEN TWO OR MORE PARTIES HAVE A
SHARED INTENTION INDUCED BY A COMMON MISBELIEF
Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
OUTLINE OF TOPICS
Copyright 2015 © All Rights Reserved
MATH OR EXCEL ERRORS
DATA ERRORS
IMPROPER USE OF EXTERNAL DATA
NOT UNDERSTANDING THE COMPANY
NOT NORMALIZING APPROPRIATELY
NO COMMON SENSE
OUTLINE OF HOW TO REDUCE ERRORS
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
MATH OR EXCEL ERRORS
Copyright 2015 © All Rights Reserved
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
DATA ERRORS
Copyright 2015 © All Rights Reserved
INAPPROPRIATE
RELIANCE OR
MISAPPLICATION
OF INDUSTRY OR
TRANSACTION
DATA
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
NOT UNDERSTANDING COMPANY SPECIFIC
FACTORS
Copyright 2015 © All Rights Reserved
• HOW DO THEY MAKE MONEY
• WHAT MAKES THEM UNIQUE
• WHAT RISKS DO THEY FACE
• HOW DOES CUSTOMER MIX IMPACT
GROWTH, PROFITABILITY, AND RISK
• WHAT INVESTMENT IS REQUIRED TO
ACHIEVE PROJECTIONS
• HOW ARE PAST AND FUTURE
COMPARABLE
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
NOT NORMALIZING CORRECTLY
Completely overlooked or missed
Not supported or reasonable
Do not incorporate management input
Not benchmarked for reasonableness
Inappropriate application of or reliance on benchmark
Not reflective of “expected” business operations or performance
Double counted in company specific risk adjustments or
discounts / premiums
No consideration of multiple outcomes for adjustments in
“expectations”
Not traceable or properly documented
Copyright 2015 © All Rights Reserved
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
WHY IS NORMALIZATION COMPLICATED?
Requires diverse
experience and
depth of
knowledge
Client input is
required BUT
Opinion based
Copyright 2015 © All Rights Reserved
Southeast Chapter of Business Appraisers
Annual SE Regional Conference 2015
NOT APPLYING COMMON SENSE
Copyright 2015 © All Rights Reserved
Albert Einstein
Would I buy it?
Then redefine the buyer and test their willingness to buy