The potential pitfalls of using rules of thumb in valuation are explored in a new white paper posted on the website of the Canadian Institute of Chartered Business Valuators (CICBV).

Court review: The white paper also reviews a number of cases that reveal how the courts in Canada have assessed rules of thumb and their application in a business valuation context. “In general, we found that the courts have been circumspect in their acceptance of estimates of value based on rules of thumb and have cited many of the pitfalls/issues we noted above with respect to rules of thumb as reasons to disallow or limit their use in a valuation context,” the paper states.

Tara K. Singh, a senior associate with Cohen Hamilton Steger & Co., a leading Canadian boutique firm specializing in damages quantification, business valuation, and forensic accounting, wrote the white paper.