Monday, June 20, 2011

Valuation Experts - Hogwash!

I just spent three days last week as a witness in a murder trial.

No, actually it wasn't a murder trial but rather a divorce hearing but it had all the elements of murder trial - lots of lawyers, lots of Realtors, business appraisers, accountants and CPA's.

The trial involved 15 witnesses and centered on the disposition of personal and business property owned by the couple.

I was the expert witness called by one party to value the business. I looked at all the numbers, used the approach we suggest in Print Shop for Sale, and offered a specific recommended fair market valuation.

As I noted in my testimony, there is a big difference, sometimes huge, between an estimated "fair market value" and what I thought the business would or should sell for. This is indeed a buyer's market and buyers are looking for bargains and are not about to pay premium prices or even fair market prices when they have so many businesses to choose from.

In any event, one of the expert business appraisers on the other side was nicknamed by me the German Professor. He went on a on with his testimony, offering up valuation theories only he could explain, and finally proffered a valuation range which left everyone gasping! The range was so huge that it was meaningless.

Prompted by a question I provided to my client's attorney, the witness was asked, "Exactly how many printing businesses have you appraised or sold in the past 15 years?"

"One," that he could recall valuing, but he wasn't sure that it ever sold.

When asked the same question about one day later when I was on the stand my response was that I had valued 34 firms in the past 18 months. The bad news is that despite the fact that I believe my valuations were very realistic, I only know of two of those businesses that have actually sold, while another two have in hand "letters of intent."

Remember, most business appraisers are hoping to get the listing, and thus are quite likely to offer you an unrealistically high initial estimate just to get you to list your business with them.

Caution is in order!

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