Closely held companies or family-run firms experience various life-cycle stages, meaning that the top management may be mismatched for long periods. The mismatch increases risk and may diminish cash flows, which is why Professor Aswath Damodaran (New York University Stern School of Business) feels that traditional thinking about what makes a great CEO is flawed. “There is no one template that works for all companies,” he writes in a blog post, citing research from the Harvard Business School and McKinsey.

Assessing management is a key part of any valuation analysis, so financial experts should compare the business’s stage—from startup to decline—to the skills of the CEO and the management team. This is particularly true in SMEs where top management tends to stay entrenched as the company goes through the various stages of its life cycle.

Ask questions: For the valuation analyst, if, during the management interview, you get the impression that the CEO is a visionary, is that good or bad? If it’s an early-stage company, it may be a good fit because the CEO needs to think outside the box in terms of new ideas, markets, and ways to attract investors. But, if the company is in a mature stage, a visionary may not be a good fit—the mindset needs to be on maintaining market share, fending off competitors, and other tactics for “trench warfare.” The analyst’s questions should be geared toward ferreting out whether management is up to the task. If not, that may mean adjusting forecasts or company-specific risk.