Not every valuation fits neat financial formulas. Clients inevitably bring real-world, non-standard complications such as family dynamics, conflicting stakeholder goals, and legacy and continuity concerns to the assignment.
Traditionally used methods like the DCF, guideline public company comparisons, transactions comps, & market multiples assume clean, financially focused negotiations between a willing buyer and willing seller. Real life rarely works that way. The valuation professional must translate financial logic into insight that reflects human, strategic, and emotional reality.
I wrote more on financial disputes in family-owned business in a previous article, available here.
These complex valuations demand more than arbitrary forecasting and formulaic number-crunching.
Problems with the Standard Approach
A common approach I encounter looks like this:
- Take current business performance
- Apply growth rates to revenue and expenses
- Check if the resulting profits "look right"
This often produces projections that fail the reality test because they ignore basic constraints every business faces: capacity, capital, labour, time and space, maintenance and wear, and market demand.
In other words, the spreadsheet grows, but the real-world engine powering it does not.
This often results in projections that fail reality because it ignores these commonsense constraints that affect every business:
Importance of Analytical Creativity
Professionals must an adopt an approach that joins the financial rigor expected from a reputable valuation firm and the analytical creativity required to understand the real world. This means:
- Testing multiple deal structures against reality
- Pulling insight from qualitative discussions with stakeholders
- Recognizing that the "best" number balances financial goals with real-world constraints
The core question shifts from What growth rate do I imagine for my business? to What must be true in reality to make this forecast possible?
SP&H Client Case Study: A Family-Owned Multi-National Restaurant Chain
We recently performed a fairness opinion assignment for a very large family-owned restaurant chain. The managing shareholder wanted to buy-out his siblings' non-managing shares. Two valuation firms had previously delivered flimsy opinions which caused rifts in the reasonable expectations of the transaction outcome.
The non-managing shareholders pushed for maximum price without considering increased default risk from a bloated purchase price or post-transaction insolvency due to strained cashflows. Also, the managing shareholder was already offering above fair value to preserve family harmony. All that while dutifully preserving the founder's, their father's, legacy.
My valuation required financial modeling that incorporated family dynamics and realistic opinions of cashflow, solvency, and fairness. Intentional modeling using real-world analytical creativity showed two paths:
- A reasonable value with normal risk
- A maximal price with a high chance of failure
Proper analysis moved the conversation from arguments to data-driven trade-offs.
What Proper Forecasting Looks Like
A meaningful valuation models real operating constraints and tests different scenarios based on stakeholder goals. Analytical creativity links forecasting assumptions to actual capacity, resource availability, and real costs and risk.
This approach allows the analyst to identify value drivers and detractors from all sides of the issue, rather than simply stretching a growth rate to "make the numbers work."
Bottom Line
Seeing past the spreadsheet is key to solving complex client problems. Analytical creativity, grounded in real-world constraints, brings clarity and understanding to complicated situations. Examining the issue from every angle returns choice and mutual understanding to stakeholders – and that understanding is the foundation of long-lasting family enterprises.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
