In today’s do-it-yourself, online world, it doesn’t take a lot of research to find tools to do most tasks that were once only completed by professionals. Business valuations are no exception. There are a countless number of websites offering free or low cost valuations and valuation calculators. These tools and services offer to provide a quick, easy, and accurate value of what a business is worth. The appeal of such promises is certainly understandable. After all, who doesn’t want to save money, especially when it comes to something as mundane and unglamorous as a business valuation. We are all taught from an early age the fallacy that numbers don’t lie; 1+1=2. As such, a value should be a value regardless of how it is obtained, correct? Well, not so fast. One of the many things the great author Mark Twain was known for was popularizing the phrase, “There are three kinds of lies: lies, damn lies, and statistics.” Just as statistics can be manipulated to prove any point of view, business valuations can be just as unreliable.
A properly executed business valuation requires a complex analysis and integration of pertinent data. It involves an understanding of various concepts and the ability to know not only what the primary considerations are but also how to best implement the different approaches to be taken. In this respect, business valuation is not only a science but also an art. It is not enough to just know what the various pieces of the puzzle are, but also know how they need to be brought together in order to form an accurate picture. A strictly algorithmic approach to breaking down the pieces to determine a value does not provide the same analysis as would be garnered from a professional, certified valuator.
While these online calculators and services can offer a ballpark estimate as to what a business might be worth, the results will never be able to touch the credibility and reliability of what a certified valuator will be able to provide. Furthermore, the actual valuation process is not the only aspect of a do-it-yourself or low-cost valuation that can be brought into question. The data used in the calculations and algorithms can also become something to be brought into play during the dispute resolution process. The actual data utilized in the process has the possibility to be subjectively manipulated, either consciously or unconsciously, in order to elicit a desired result. Only using an objective, trained professional can both the data and processes thereof, be able to maintain the perceived integrity and credibility required with such an important business asset.
Of course, the most obvious argument against going the DIY or low-cost route is the lack of post-valuation support. In times when there is a substantial need for a valuation, there may also be a requisite need to have someone that can professionally represent and defend the information contained within the report. It is unlikely that an “online-zippy-quickie value” will withstand a Daubert challenge in tax court or other court of law. A personalized valuation report prepared and represented by a certified business valuator will present the best chance at achieving the desired result.
The bottom line is there is nothing wrong with using an online calculator or low cost service to obtain a quick, off-the-cuff idea as to what a business may be worth. However, when an accurate value is required and the consequences are more substantial, do you really want to put your faith in a DIY valuation? Remember, “A man who is his own lawyer”….