When a business valuation expert, also known as an accredited business appraiser, sets out to value a business, they are looking at it as though there will be a sale. Sometimes a business is valued for an actual sale while for purposes such as gifting and divorce, a hypothetical sale is assumed. In all cases, a transaction is assumed including a knowledgeable buyer and seller. Analogous to any transaction, the buyer is naturally motivated to achieve low value, while the seller is motivated to achieve high value. When it comes to business valuation for the purpose of dispute resolution, there’s always a party with the buyer mindset and a party with the seller mindset. The buyer always wants the lowest value and the seller always wants the highest value. This can lead to an adversarial situation.
One solution that is less expensive, less emotionally draining and built on rational assumptions is to have a joint appraisal done by an experienced and independent business valuation expert.
This means finding a comfortable middle ground. It typically doesn’t pay to hire someone who will tell you what you want to hear, only to end up fighting with the other party who has taken a similar approach with their best interest in mind.
With a joint business valuation, the business appraiser navigates through each individual assumption that feeds into the valuation model, getting input from each party. Differences are discussed and resolved. At the end of the process the conclusion of value is rarely disputed because both parties have had input and understand how the value conclusion was reached.
How does a successful joint appraisal work?
- A single business appraiser is hired.
- Both parties agree to full transparency and all needed information is provided in a timely manner. There are no behind the scene conversations with the valuation expert.
- The valuation expert works with the parties to facilitate discussions and find agreement on the individual assumptions (both quantitative and qualitative business factors) that go into the valuation model. One example is future sales growth--one party may assume 10% growth based on historical factors, while the other party assumes 4% growth based on the potential economic slowdown. An experienced appraiser will listen to each party’s reasoning for their assumption and independently research the local and industry outlook and then assist the parties in arriving at a mediated assumption.
- The appraiser facilitates conversation through each assumption in the business valuation model. These assumptions are key to the projections that lead to a value conclusion. In essence, the parts become the whole.
Why does a Joint Business Valuation work?
Once parties contribute to the many assumptions that feed into the business valuation model and feel that they’ve had input, it’s difficult to dispute the final conclusion.
This is in contrast to a traditional dispute scenario whereby each side obtains separate and significantly different conclusions of value based on self motivated assumptions, and then tries to find settlement.
Whether it’s a family dispute, shareholder dispute, divorce or other adversarial situation, a joint business valuation can be the most efficient use of resources in terms of invested time, money and emotional wellbeing.
All of this leads to resolution so everyone can move forward and still be talking with each other.
Our team of independent business valuation experts is experienced in facilitating and mediating this joint appraisal process. Please contact us with questions or when you have a client that could benefit from this approach.
Cathy is the President of Capital Valuation Group, Inc., headquartered in Madison, WI. Capital Valuation Group has been helping business owners across the country understand, increase and unlock the value of their businesses for over 45 years through keynote speaking, valuation analysis, determining damages and providing expert witness testimony. Cathy welcomes conference and event speaking inquiries and can be reached at firstname.lastname@example.org.