1. Starting with the price you want
An owner's funding needs or effort invested do not alone establish value. Set the valuation purpose and basis before discussing a result. Distinguish a negotiating target from an evidence-based valuation conclusion.
2. Providing incomplete information
Missing debt, unusual expenses, customer losses or related-party arrangements can distort the analysis. Supply complete financial records and explain limitations openly. A valuation built on incomplete facts can be difficult to rely on later.
Prepare the financial statements, current management accounts, forecasts, contracts and the supporting detail for significant adjustments. Reconcile the figures used in the report to the source records.
3. Applying an unsupported multiple
A multiple from another company or transaction is not automatically comparable. Review the earnings definition, business model, growth, risk and deal terms. Check whether the reference concerns enterprise value or equity value.
A rule of thumb can be a cross-check, but it should not replace the analysis required for the engagement's purpose.
4. Expecting a single number to answer every question
Value can depend on the basis, ownership interest, assumptions and intended use. A financing discussion, dispute, internal planning exercise and sale negotiation may not require the same assessment.
Ask the adviser to explain the scope and the limitations on using the report for another purpose. Do not distribute a planning estimate as if it were a report prepared for a different recipient.
5. Treating the result as permanent
A valuation is tied to a date. New trading results, customer changes, financing, market conditions or legal events can affect the conclusion. Record material changes after the valuation date and consider whether an update is needed.
Review the assumptions with management rather than assuming a forecast remains reasonable because it appeared in an earlier budget.
6. Ignoring the practitioner's fit and evidence
Choose relevant experience and a clear methodology. Agree deliverables, information responsibilities, fees and the review process. Ask how significant uncertainty and sensitivity will be presented.
A credible report explains how the conclusion follows from the evidence. It does not promise an exact sale price or remove the need for due diligence and negotiation.
