Business owners and managers typically have the deepest understanding of their company’s operations, strategies, and challenges. As part of the valuation process, professionals often conduct management interviews alongside facility tours to gain a more complete picture of the business. Here’s a closer look at how management interviews can lead to more reliable value conclusions.
Obtaining Operational Insights
Valuation professionals often combine management interviews with tours of the subject company’s facilities. Among other things, these interviews usually provide answers to the following key questions about the business’ operations and outlook:
Does The Business Have Adequate Management Depth?
A business’ financial direction and corporate policies may be decided by just one individual or a management team. Businesses generally benefit from multiple people’s contributions and varying opinions. Conversely, reliance on just one or two owners can create key-person risks that could impair value.
Does The Business Have A Succession Plan?
Business value is often derived from the subject of a company’s future earnings. Implementing a succession plan helps continuity if current owners leave the business. A well-thought-out plan is essential to a business’ financial future and, therefore, its value.
Are There Plans To Grow Through Acquisitions Or Capital Investments?
The answer helps valuators understand management’s growth strategy and expectations for future performance. Plans should produce growth without significantly compromising the subject company’s core business or its liquidity. Valuators may also inquire about any plans management might have to sell the business or discontinue unprofitable segments.
What Are The Business’ Competitive Advantages & Disadvantages?
This helps valuators identify the business’ value drivers, operational challenges, and competitive position. Understanding these advantages and disadvantages can help valuators assess future risks, opportunities, and financial performance.
Most interviews conclude with an open-ended discussion of any other relevant facts that may impact value. In place of one-on-one meetings, some experts submit written questionnaires regarding these and other questions. This approach may suffice when access to management is limited. If necessary, attorneys may need to request depositions or file detailed interrogatories to obtain information from management.
Providing Access & Transparency
Management interviews are a routine (and minimally invasive) part of the valuation process. This step is generally easy to accomplish when management hires an expert, but it can be particularly challenging in adversarial situations, such as owner disputes and divorce cases. Even in these situations, management interviews can provide information that may not be available from financial records, marketing materials, and public data sources, such as websites and social media pages.
For this reason, management should make a reasonable effort to cooperate during the interview process, even when a valuation is being performed in connection with litigation. In such situations, counsel should encourage transparency, though participants may not always be accommodating or forthright during interviews. Yet as many attorneys know, performing management interviews is important because it can help enhance a valuator’s credibility in the eyes of a court.
Getting It Right
When valuation professionals have full access to business resources — including both quantitative data from financial records and qualitative data from management interviews — their analyses are more reliable. Whether you need a valuation for litigation, a business transaction, estate planning, or another purpose, our professionals can help identify the information needed to prepare a credible, well-supported value conclusion. Contact us to discuss your business valuation needs.
