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Tuesday, February 16, 2016

Valuation is an art, not a science

Koji Bratcher, ASA
Business Valuation Supervisor
Los Angeles, CA
“Valuation is an art, not a science” is a phrase commonly used within the valuation community to describe its somewhat imprecise nature.  One of the reasons I was drawn to, and continue to be intrigued by, the business valuation profession is the fact that it requires quite a bit of judgment and subjective analysis on the part of the appraiser.  While the process tends to be similar when valuing any company – talk to management and learn about the business, conduct market and industry research, decide on methodology and perform calculations, and, finally, conclude on value and perform tests of reasonableness – each step requires some level of thought from the appraiser.  Furthermore, the valuation community’s collective thinking is constantly evolving, which often results in diverging opinions among appraisers.  This evolution, coupled with the fact that business valuation requires substantial subjectivity, keeps things interesting in the day-to-day work and overall profession (and provides some level of comfort that I won’t be easily replaced by a computer algorithm in the near future).

I made the switch to RSM in Los Angeles in August 2015 from a very small boutique valuation firm in South Florida.  In all, there were four professionals at my old firm, which required autonomy on the part of the analysts.  Working in a small firm, I enjoyed having the responsibility of working on assignments on my own and the flexibility to use progressive valuation techniques. One of the leading fears I had when contemplating the move from a small, flexible firm to a large, public accounting firm was being put in a box and restricted to analytical techniques that are only approved by firm leadership.  Fortunately, those fears haven’t come to fruition, as RSM’s valuation team has been open to expanding our firm-wide “valuation toolbox.”  Although I have found there to be more procedural “red tape” (to be expected at a large firm), nothing has restricted any “out-of-the-box” thinking (in fact, this has been encouraged).

For me, one of the biggest differences between working at a small firm and RSM has been the shift from a mostly analytical role to a managerial position.  This has been one of the most rewarding aspects of my move to RSM, as I truly have enjoyed training and teaching staff (and learning from them as well!).  I am, at heart, a “valuation nerd” and savor discussions about valuation theory and “what makes sense” (even over drinks at happy hour). Thus far, I have been nothing short of impressed and humbled by the knowledge and talent of the individuals I have met at RSM (from the intern level through partners).  My many conversations with other RSM professionals (even non-valuation people) have pushed me to revisit my thought processes, which has helped me to better see the “big picture” and further grow as an appraiser.

Overall, the move to RSM has been very positive for me and I am happy to help the firm deliver "the power of being understood!"

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