In the 36 years since the first edition of Shannon Pratt’s Valuing a Business was published, we have seen a proliferation of data, tools, and techniques for business valuation. Some of these have been incredibly useful, leading to more reliable valuations, and ushering in a new era of “evidence-based business valuation.” However, this proliferation has made it difficult for appraisers to keep up-to-date on the latest developments in the field. There are also concerns that the profession is trying to turn the “art” of valuation into the “science” of valuation, and becoming overly mechanistic in the process. Join Barry Baker for an exploration in the application of professional judgment in a data-driven world, and get recommendations for justifying and supporting your professional judgement.
Program Agenda
Background and general recommendations
Business valuation has matured as a field and profession
Old school approach used to justify and support judgments:
“In my experience…” or “In my professional opinion…”
Both are too close to the salesman’s pitch “Trust Me”
New school approach increasingly required:
Evidence-based business valuation
Must apply and communicate the analytical process and data that supports your opinion
Echoes of the familiar “Trust but Verify” or maybe “Show Me the Money”
Is there still room (or a need) for professional judgment?
General recommendations based on Revenue Ruling 59-60 and its reference to “the elements of common sense, informed judgment and reasonableness”
Specific examples and recommendations in areas that frequently require professional judgment:
Tying together economic, industry and company analysis
Subject company normalization adjustments
Income approach –projected cash flow, operational and financial risk, and long-term growth
Market approach – comparable data selections, exclusions & adjustments
DLOC and DLOM adjustments
Weightings and reconciliation
Learning Objectives
Understand how the role of business appraisers has evolved in a data-driven world, and the reasons that professional judgment and communications skills may be more important than ever
Describe best practices for developing and supporting your opinion of value
Explain the frameworks and reasonableness tests that can be applied in various areas that frequently require professional judgment
Articulate why the business appraisal profession should develop/adopt new methods and data sources derived from relevant “real world” transactions
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