Bad discount data: Is that the next BV ‘black box’?

BVWireIssue #51-2
December 13, 2006

“The data we use for discounts and premiums is just atrocious,” according to Gary Trugman (Trugman Valuation Associates), who spoke on an “Ask the Expert” panel at last week’s sold-out AICPA National BV Conference in Austin. “We are making judgments on bad data. And the judges are getting smarter,” he warned—which means that business appraisals are becoming more vulnerable to an “onslaught” of malpractice suits. “Try to get the value right the first time,” he advised, “so [you] don’t have to whack it with discounts.”

Fellow expert-panelist Chris Mercer (Mercer Capital) agreed. “Every time you rely on market studies and don’t understand where the data came from—or what it means,” you’ll expose yourself to attacks on your credibility and your conclusions. And Shannon Pratt (Shannon Pratt Valuations) adds, “I’m amazed that some practitioners still use the average of [market] studies” for determination of valuation discounts. I agree with Chris and Gary,” he said —which may have been the biggest news of the conference, a perfect tri-partite expert accord.

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