It is not a mere truism that ‘no one knows the future for sure’ when it comes to business valuation! Do not allow zealous defense of point estimates and forecasts sway you, because if something can go wrong, it probably will!

There are no financial gains in revengeful performance appraisals, and the authors of that horribly wrong business valuation of the past, may not be around anyhow! A decade is par for the course when it comes to business valuation: how much of today did you foresee a decade ago?

Crafty business valuation presenters tuck their statements of and slides on assumptions for the part when you eyelids feel a bit heavy! So why not turn the tables, and ask for assumptions and their sensitivity upfront? A project with a narrow band between the best and worst case scenarios, might be a wiser choice, than another which either takes you to the top or to obliteration forever!

Modeling and computers make sensitivity analysis a cinch, and you should ask for a screen at which you can tweak as many independent variables as possible, just to see what it can do to the ultimate business valuation.

This calls for an enormous amount of work, though you may enjoy clicking a mouse, because you know what happens when garbage substitutes careful projections in a business valuation model! The best way around such a conundrum is to fashion the business valuation exercise such that participants are forced to think through and to validate the figures they spout under each scenario.

Filed under: Business Valuation

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