Rules of thumb are used by business valuators and business owners as preliminary tools to calculate the value of business interests, or as a “reasonability check” of value arrived at using a primary valuation method, or, infrequently, as a primary valuation method itself.
Rules of thumb have the advantage of being straightforward and inexpensive to apply. Yet while “generally” useful, applying these rules wholesale, without properly considering their applicability in a transactional context, or failing to note key underlying assumptions implicit in the specific rule of thumb being applied, can easily lead to the gross under or over-valuation of business interests. Join Prem Lobo (Principal, Cohen Hamilton Steger & Co. Inc.) and Tara Singh (Senior Associate, Cohen Hamilton Steger & Co. Inc.) as they discuss how business valuators and business owners have to understand how rules of thumb are determined in the first place, and whether they are applicable in the specific context of the business interest being valued.
This webinar is an essential guide to the benefits and pitfalls of using rules of thumb to value business interests. We will discuss commonly cited sources of rules of thumb data, how such rules of thumb are compiled/determined, what contextual circumstances may or may not be considered by rules of thumb, examples with respect to the potentially appropriate and inappropriate use of rules of thumb to value business interests in specific circumstances and overall comments from Court judgments with respect to the use of rules of thumb.
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