It is understandable why when evaluating a business valuation professional, some people ask, “Do you specialize in my industry?”
For many services, knowing one’s industry can bring great value. It shortens the learning curve and addresses the nuances of your industry that the service provider will or should readily understand. I get it.
Should this be your focus when evaluating a business appraiser to prepare a business valuation for your business or for you to refer one of your clients?
Franchises: Comparing Valuations of Businesses within the Same Franchise
Franchises are a great example of how valuation can vary greatly from one franchise to another. An example, I have completed numerous business valuations for the same fast food restaurant franchise.
- The industry is the same.
- The restaurant is essentially the same (minimal differences)
- The business model is the same.
- The physical assets are the same.
- The ingredients, recipes, and food provided are the same.
So why has the valuation of each of these franchise restaurants varied considerably?
There are many variables that ultimately affect the valuation of a business, including those within the same industry. Leadership and management have a big effect on value as does location. Is one located in an easy to access location with plentiful parking while another’s location is less desirable in terms of access and parking? The former’s valuation will be higher, all other factors being equal. Each restaurant could be in the same location on different sides of the street and that could result in different values. Other factors driving value include restaurant cleanliness, friendliness of the staff, and compliance with key brand qualities such as freshness rules.
Same industry. Same franchise brand. Significant difference in valuations from one restaurant to another.
Industry experience can be valuable, but experience across industries offers in-depth analysis and breadth of perspective as the business valuation professional is not stuck in a silo.
Breadth of industry experience is a benefit when speaking to and evaluating business appraisers. Breadth of experience contributes to thoroughness. Cross industry experience is naturally tapped into by a business valuation professional when preparing a detailed business valuation. Breadth provides additional insight and takes the blinders off – that is a real risk when choosing an industry-focused appraiser who is stuck in a silo.
Don’t put weight on industry specialization as a criterion for a business valuation professional. Rely on track record, breadth of industry expertise, and one’s certifications and credentials.
When Values Matter. Breadth Matters.