Business Valuations Blog

Business Valuation Services: Buyer Beware – Quick-Fix Business Valuations May Result in More Harm than Good

Buyer Beware - Quick-Fix Business Valuations May Result in More Harm than GoodI think we’ve all heard the saying, “There’s no such thing as something for nothing.”  I think it is possible to take that a step further and say, “There’s no such thing as a lot for almost nothing.”  With the current economic downturn, consumers have become far more judicious with their purchases and are doing all they can to squeeze as much out of every dollar spent as possible.  Me personally, I’m still using a flip-phone without internet, I pretty much only get new clothes on my birthday or Christmas, and my wife and I eat at home for most meals.  We are all looking for ways to reduce our spending while still maintaining a similar standard of living.  In many areas, though, particularly with professional services, the old adage of “you get what you pay for” still rings true. 

As business valuation experts, we have run across a number of clients who previously obtained “valuations” from companies that offer their services online for only a few hundred dollars.  Oftentimes, the result is a poorly-produced, unreliable analysis that does not appropriately determine the Company’s value.  Further, these reports are often not admissible in the courtroom (or they are beaten up by opposing counsel if they are admitted).  It is a classic example of paying a little and expecting a lot – it is also something that I think I would probably do myself to keep my expenses low if it weren’t for my background in business valuation and litigation support (during which I have seen even extremely credible experts who have poured numerous hours of work into an engagement have the reliability of their conclusions and reports questioned). 

It is important to note that credentialed valuation experts have certain professional standards that they must follow when they provide their services.  This is meant to ensure a level of professional competency and reliability that is not present in in many of the “quick fix” valuation shops.  Some of the first areas that an opposing attorney will explore in cross-examination are a valuation expert’s credentials and adherence to professional standards.  If the expert cannot address these questions, his testimony will likely carry little weight (if it is even allowed in the courtroom).

I can appreciate wanting to keep expenses down during this difficult economic environment – I think my wife may call me “miser” more than she calls me “honey,” but when faced with a valuation issue that may end up being litigated, it is worth the investment to bring in a credentialed expert who has the ability to support his or her conclusion against scrutiny from opposing counsel.  To paraphrase a quote from super investor Warren Buffet, “It is better to buy something great at a fair price than buy something fair at a great price.”

Have questions about a “valuation” you obtained previously? Post your question below or contact our Business Valuation Services at 440-449-6800.

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