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.