Business valuation can become quite useless if an organization does not detect signals of danger early enough to contain damage. The risk management approach promotes a culture which safeguards precious capital resources.

Business valuation becomes bureaucratic and ritualistic if you insist on contingency planning for every risk. There is nothing much you can do in an earthquake, or if sharp showers delay a shipment. Contingency planning for uncontrollable disasters, or for trivia, only serves to divert attention from serious and likely risks. It is a leadership prerogative to select strategic risks for detailed consideration in a business planning exercise.

Product liabilities, regulatory changes, competitive moves, cost over runs and project delays are generally the most destructive when it comes to business valuation. They are worth providing for in detail. A leader must communicate the reason for contingency planning, lest a business valuation task force gets lost in a negative mind set, and lose morale. Contingency planning should not get equated with opposition to a project.

Waves of proposals and pressures of current operations keep much of business valuation work on paper. It is tempting to put a plan of corrective actions on paper, and let it gather dust there! Take steps to ensure that contingency actions are set in motion in reality, so that business valuation objectives can be met even when circumstances change.

A professional who knows the path through thorough investment analysis may ask naïve questions when first introduced to a new venture, but this seeming innocence can uncover some grave and basic errors on which business valuation numbers are based.

Demand trends, competitive changes, inflation, and time lines are generally the best considered assumptions, because our minds naturally tread these areas when we reflect on business valuation.

The regulatory environment, macro-economic trends, geo-political instability, and social upheavals, are some areas in which professional executives have limited if any exposure: hence assumptions remain implicit and not discussed in business valuation discussions.

It is best to take a zero tolerance approach, and to dig deeply for all assumptions in every projected value of a business valuation. Stating them is far from enough: you have to prepare models which allow you to deal with uncertainty, and to manage the risks of forward looking investments.

You can prepare a fairly comprehensive list of assumptions that need examination, by listing all foreseeable risks. Expertise comes form adversity and hindsight, hence people who take the blame for past failures, can be coaxed in to invaluable insights as far as assumptions behind new business valuation is concerned.

The value of brands is relatively well known, but finance professionals, who generally lead business valuation exercises, are usually at a loss to discern trends in rank, image, and margins. You might think that accountants can apportion contributions to individual lines of revenue, but there could be many operational realities, such as the time of sales people, which are misleading in business valuation exercises.

Even the most qualified and experienced professionals can be guilty of subjective bias when it comes to the goodwill aspects of business valuation. It may appear wasteful at first sight to invest in an objective survey with a duly stratified sample, but a reliable basis for estimating the effect of goodwill in business valuation can prevent costly and irreversible mistakes.

Overly enthusiastic backers or opponents of a specific business valuation exercise may try to use benchmarks and market precedents to support their points of view, but your capital deserves more specific proof!

Know-how is perhaps the most elusive of the drivers of commercial worth, which weigh down efforts to determine the true worth of an enterprise. Technologists in dark corners of a company may not only substitute weak in-house processes, but represent enormous potential if deployed effectively.

This sword has two edges, because key people may leave after a business changes hands. You can be sure that top guns will lobby hard to save their jobs, but the real value may reside in the engine room of your proposed acquisition. Due diligence should never leave out distant sites and the ‘innards’ of an organization.

The rate at which projections are discounted are more related to present inflation than to uncertainties of the future-they can mislead though the sophistication of analysis and the graphs look good.

Pay back is more tangible and binds people securely. You can influence business valuation by asking for proposals to be reworked so that pay back is brought forward. This is especially the case when you expect a continuing stream of developing investment opportunities. Pay back should also have priority when you are forced to stray far from your home turf, whether geographically or in terms of economic sector.

There are a number of ways in which your business valuation team can restructure cash flows to ensure earliest possible pay back. Staging investments is a great way to do this, and gives incentives to implementing teams to try harder. Another approach to business valuation could be to start with a loose association before ownership changes hands.

Discourage the establishment of large capacities much in advance of demand, merely because economies of scale are involved. Lease rather than invest as far as possible, and outsource non-core services, rather than establish your own permanent infrastructure. Critics may say that you are timid, but why attempt to be a hero with capital?

Furniture and fixtures are rarely material, unless there are some antiques involved, but new plant and machinery may cost much more than amounts in depreciation reserves. You cannot blame a seller for prevaricating on fresh investment to keep a business going, but a seller has to take them in to account to hold on to market share. The revaluation approach to business valuation has increased relevance in this age of globalization and new technologies.

Accounting based on written down values belongs to less turbulent times. Most books rely on tax rates of depreciation, which can exacerbate errors in business valuation. The effort to revalue all assets may not be worth the time and money involved in getting figures from independent experts, but the approach has value for the most strategic fixed assets deployed in an enterprise.

The perspectives of buyers and sellers may differ on this axis, because of which some of the successful business valuation projects are ones in which a buyer sees hidden values in assets which a seller cannot realize.

It is not as though revaluation always leads to a treasure at the end of a rainbow. The exercise may show business valuation in negative light, because the operations are not economically feasible at current prices for the assets used. A buyer may still have good reasons to go ahead with purchase, but should be ready for the additional doses of capital influx which must follow.

However, planners let loose, can indeed fire volleys of pages which can match theses by weight! Who is not short of time, and left wondering how to be truly sure that everything relevant has been taken in to account during a business valuation exercise?

A standard set of questions can help. It does not matter if subordinates learn your style, because they will prepare full answers during the next business valuation opportunity! Working Capital is a good area to put under a business valuation microscope, because so many junior people in an organization may tinker with it, without outsiders who are new to an operation, realizing the truth behind numbers.

You can start the Working Capital section of your business valuation review, by searching for slow-moving items in reported inventory. Has anyone been to the warehouses, and removed damaged and expired goods from the books? Many companies resort to deals for the trade, to window-dress results at the end of a reporting period. Take a look at how inventory levels moved in-between reporting periods, and suspect any peaks and troughs that you see.

Working Capital analysis is a bit like archeology! You can uncover an entire corporate culture by a painstaking restoration of statements concerning inventory, receivables, and payables. An investment proposal which stand up to scrutiny in this area is probably sound in the other parts as well. Sellers, who would like to make favorable impressions on potential buyers, can use this Working Capital approach to good effect as well.

Business valuation requires trust, so the number crunching is done by people who know your pet peeves! Well, everyone has blind spots, so how do you avoid future downsides which no one over who you wield power wants to tell you?

Social workers who have the pulses of demographic segments of customers, scientists who have spent lifetimes with emerging technologies, young politicians with dreams of new policy initiatives, and the most successful executives from unrelated industries, can all be treasure houses of information which you will not find inside your company!

You cannot make earth shaking decisions based on stray and wild ideas, but systematic networking, or even a structured Delphi approach, will add value to every business valuation. Some of the best decisions are ones that seek to unlock values, which elude present owners. The party with whom you negotiate may have no idea of your business valuation!

Delphi Analyses work best in groups. Scientists and experts with opposing views should be able to reconcile their differences. The process can matter more to business valuation than the outcome, because an investor and technical aids can gain many insights during discussions.

The latter can meander, so it is best to try and focus debates on key issues of importance and relevance to business valuation. Product obsolescence is generally the most leveraged area for the views of independent experts.

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.

You could be saddled with armies of blue collar workers who drag the enterprise down a bottomless pit. Some emerging economies intentionally lure you with incentives to make your business valuation look good, whereas the real agenda is to get you to provide jobs to scores of people without skills, and with mounting demands to boot!

Markets with unequivocal intellectual property protection are happy grounds for business valuation prospectors because they let you deploy resources in flexible ways. The chances of capital losses are much lower in such environments, even if returns appear to be pedestrian.

This aspect needs some discretion on your part, because many business valuation models assume a greater variability in personnel expenses than can turn out to be the case in real life. Have you ever seen a business valuation report with a future redundancy settlement claim built in?

It is not with staff costs alone: many items of rent, business promotion expenses, and travel costs become semi-fixed over times. You may even find it hard to cut back on Xerox and stationery expenses after you have approved a business valuation proposal!

Perhaps you should question the treatment of all significant expenses in a business valuation, and find out the durations for which you have to commit to foot the bills. Check the fine print to ensure that you can really exit an expense head when you need to.

Furniture and fixtures are rarely material, unless there are some antiques involved, but new plant and machinery may cost much more than amounts in depreciation reserves. You cannot blame a seller for prevaricating on fresh investment to keep a business going, but a seller has to take them in to account to hold on to market share. The revaluation approach to business valuation has increased relevance in this age of globalization and new technologies.

Accounting based on written down values belongs to less turbulent times. Most books rely on tax rates of depreciation, which can exacerbate errors in business valuation. The effort to revalue all assets may not be worth the time and money involved in getting figures from independent experts, but the approach has value for the most strategic fixed assets deployed in an enterprise.

The perspectives of buyers and sellers may differ on this axis, because of which some of the successful business valuation projects are ones in which a buyer sees hidden values in assets which a seller cannot realize.

It is not as though revaluation always leads to a treasure at the end of a rainbow. The exercise may show business valuation in negative light, because the operations are not economically feasible at current prices for the assets used. A buyer may still have good reasons to go ahead with purchase, but should be ready for the additional doses of capital influx which must follow.