Just ask the owner what the business is worth, and “multiply by .70,” says Rob Slee, who made a provocative four-hour presentation at the recent IBA 2007 Symposium in Denver (see BVWire #57-4). “If the owner is in ‘Lala-land,’ multiply by .5.”
The point being: “Appraisers are not the authorities on value; we are the interpreters of authority,” which can include the business owner as well as the market, the IRS and the courts, the investors, banks, insurance companies, and on and on. “Each authority is ‘right’ in its respective world,” Slee says, and each value “world” has its own rules, risks, and rates of return. Slee doesn’t like the term “premise of value,” as it’s not particularly useful to private business owners or investors. Instead, he recommends understanding value in terms of its relativity, and reminds analysts that because the possibilities for valuing a business are infinite, they should always ground their appraisals in the appropriate valuation “world.”
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