I have an MBA … so I’ll just do my own valuation

So this is a fun call that we get from time to time.  Bob the Business Owner lobs in a call or an email inquiring about getting their business valued.  But after learning that its not – and I know this is a huge surprise – free, Bob responds “Well, I have an MBA so I’ll just do it myself.”

You probably know where this is going, right?

Please Listen: Bob, I would really like you to reconsider what you are saying here.

Item 1: How Much Valuation Experience Do You Actually Have?

So you went to B-School and got your MBA.  Depending on your school and track you probably took some where between a few and a bunch of finance related courses.  How many where courses on valuation?  And how many on the nuances involved in valuing a small company?  For instance, here’s

Let’s look at Wharton’s Financial Services track.  Here’s their fixed core cirriculum:

MGEC 611: Microeconomic Foundations
MGEC 612: Advanced Topics in Managerial Economics
MGMT 610: Foundations of Teamwork and Leadership
MKTG 611: Marketing Management
OPIM 611: Managing the Productive Core of the Firm: Quality and Productivity
STAT 613: Regression Analysis for Business
WHCP 611: Management Communication-Speaking

Which one of those is jumping off the page as “that’s a super intensive course about valuation”?

Item 2: Is This the Best Use of Your Time?

Granted, Bob is a smart fellow.  He’s an entrepreneur.  He can DIY.  He can read some books, googles about the internet, and figures out some stuff about valuing a small business.   Once Bob’s got the swing of things, he can work on building out a viable financial model to suite his firm, and away we go.

The thing is, I know how long it takes us to value a business.  I presume Bob’s time has a reasonable hourly rate attached to it.  I also presume that to do it right, including the ramp up learning curve, this is probably (by that I mean totally) going to take Bob longer than us.

Is this the best use of your time?

Item 3: How Do You Know You Got It Right?

Because, it’s pretty important to get it right.  Are you planning for an exit?  Considering a sale?  Buying a company?  Regulatory requirements for 409(a)?  All of these are pretty big decisions with real life implications.  This might not be be the best time to go all DIY.