Is it normal for valuators to disagree widely on a business’s value?

BDC describes several valuation methods, each built on its own inputs, so two valuators can reach different figures for the same business. A valuation is built from a method and a set of assumptions, and each choice moves the result. BDC refers to the mid-point of a range of business value estimated by an expert, which suggests that a valuation can be a range rather than a single figure. How wide the gap is matters less than whether you can see why it exists.

Three methods, three sets of inputs

BDC describes discounted cash flow as forecasting earnings, capital expenditures and working capital to arrive at a stream of free cash flow. Asset-based valuation sums the fair market value of tangible and intangible assets, then subtracts liabilities. Market multiples apply ratios from comparable transactions or public market data to metrics such as revenue or EBITDA. Each method rests on different inputs, so the same business can produce different outputs.

Inputs that move the answer

Within one method, the starting earnings matter. BDC lists the impact of potential normalizations among the items a buyer reviews, so two valuators who recast earnings differently will start from different numbers. A forecast, the choice of comparables and the weight given to reliance on the current owner can also differ. If two reports disagree, compare these inputs line by line before comparing the totals.

Questions to put to each valuator

• Which method or methods did you use, and why those?
• What earnings figure did you start from, and what adjustments did you make to it?
• Which comparable transactions or market data did you rely on?
• What was the report prepared for, and does that change the basis of value?

BDC says it is important to engage a Chartered Business Valuator to get a realistic market-perceived price. It also says a buyer’s due diligence tests whether the initial valuation still makes sense, so a buyer’s figure may differ from yours.