A multitude of reasons exist for trying to predict the future operations of a business, Jim Catty, CPA/ABV, CFA, CVA (Corporate Valuation Services, Ltd, Toronto) said during his “Are Management Forecasts Reasonable?” presentation at NACVA's Fifteenth Annual Conference in Las Vegas. “It is impossible…to be accurate, but one must strive to be effective,” Catty said, driving his point home by referencing the quote in the headline, ascribed to the immortal Yogi Berra. An appraiser needs to understand the context in which a financial projection is developed as well as the company’s past performance. However, Catty warns, there is danger in relying on the past. “The problem with relying on history is that a love of certainty and continuity often causes us to draw the wrong conclusions.” He recommends looking back at least twice as far as you plan to project – usually 10 years in the past to five in the future and advises applying a minimum of three scenarios: (1) Success (most-likely management’s optimistic view; (2) Survival (mediocre to poor performance); and (3) Status-Quo (little change, if any, from the prior year). Jim’s complete article on the topic appears in the July issue of the Business Valuation Update ™
Given the importance of—and debate around—working with management projections, BVR has collaborated with Neil Beaton and Jim Catty for an exclusive one-day workshop on Friday August 15 at the beautiful Hyatt Regency right on Lake Tahoe. Registration is limited to the first 40 people, so escape the heat, bring the family and walk away with a solid framework for management projection analysis. For more information and to register, visit The Uses and Abuses of Management Projections web page.
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