How Important is Industry Specialization for Business Valuations?

Feb 22, 2022

For some professional services, industry specialization matters. A professional’s focus and in-depth knowledge of a particular industry can offer tremendous value to the client. I am regularly asked about industry experience and if I specialize in select industries to prepare business valuations.

Do you have experience in my sector?

It is not unreasonable that many people seeking a business valuation want assurance that the business appraiser understands their industry. While understandable, it should not be a focus when evaluating a business appraiser.

There are much more important aspects of a quality business valuation than if the business appraisal has developed valuations in the specific sector. Of paramount concern should be objectivity and impartiality.

Given my years of experience, I have developed business valuations for all major industries and sectors including, but not limited to, retail, food service, wholesale, manufacturing, technical services, professional services, healthcare, and real estate holding companies. For a list of industries for which business valuations have been prepared, click here.

Is industry specialization an important factor in choosing a business appraiser?

Given that industry experience is not a top qualifier, it is certainly not recommended that you seek a business appraiser who specializes in select industries. Our experience has shown that industry specialization does not translate into better results. On several occasions, our work has prevailed over the opposing so-called industry specialists.

What is more important than experience in the specific industry is the process, including a careful and thorough qualitative and quantitative analysis of the company and the environment in which it operates.  The business appraiser must consider the history, products, markets, customers, management and employees, facilities, capital structure, competitors, industry, economy, financial performance, and future earning capacity.

Instead of industry, focus on the following to evaluate a business appraiser:

  1. Credentials – what certifications does this professional have? Has this professional achieved the training and industry designations available for this field?
  2. Track record – do they have a proven track record for their business valuations holding up to the strictest scrutiny?
  3. Process – do they have and adhere to a thorough, detailed process documenting what was done, why it was done, how it was done, and the conclusions drawn as well as supporting documentation of why such conclusions were drawn?
  4. Focus – is this a full time focus of the appraiser? How much of the work does the individual you are speaking with do as opposed to handing off the work to a junior person?
  5. Methodology – we have long embraced and leveraged the Discounted Cash Flow method, a method many have more recently adopted. Ask the business appraisal professional to explain their preferred method and why.

Choosing a business appraisal professional based solely on industry specialization is not recommended. There are far more important criteria, and our experience has shown that the end result or relying on that single factor can be sub-optimal.

When Values Matter: If you or someone you know needs a business valuation for taxes, divorce, selling a business, or resolving a shareholder dispute, contact us to obtain a thorough business valuation that will stand up to rigorous scrutiny.