Why do two CBVs sometimes arrive at different values for the same business?
Two CBVs valuing the same business may arrive at different values because business valuation requires professional judgment on assumptions, methodologies, and weighting of approaches — all of which can legitimately vary between qualified valuators.
Why Professional Valuations Legitimately Differ
Business valuation is not a mechanical calculation. CBV Institute standards recognize that multiple reasonable conclusions can exist for the same business depending on how valuators exercise professional judgment within accepted methodologies.
CBV reports must disclose all material assumptions, methodologies, and limiting conditions, enabling review and comparison of how different valuators reached their conclusions. This transparency is built into the profession precisely because valuation involves interpretation, not just arithmetic.
Three Acceptable Valuation Methods Under CBV Standards
CBV Institute standards recognize three acceptable approaches to business valuation: the income approach, the market approach, and the asset-based approach.
The income approach calculates value based on the present value of expected future cash flows, using a discount rate that reflects the risk of those cash flows. The market approach derives value from comparable transaction multiples or publicly traded company multiples adjusted for differences in size, growth, profitability, and risk. The asset-based approach calculates net asset value by valuing individual assets and liabilities on the balance sheet, commonly used for holding companies or asset-heavy businesses.
Two CBVs typically weight the three approaches differently based on their professional judgment about which method most reliably reflects value for the specific business and valuation purpose. A manufacturing business with significant real estate holdings might see one valuator emphasize the asset-based approach, while another emphasizes the income approach if recurring contracts drive enterprise value.
Assumption Choices That Drive Valuation Differences
Revenue growth rate assumptions in discounted cash flow models commonly vary between valuators based on different interpretations of market conditions, competitive position, and historical performance. For example, one valuator may project 8% annual growth based on industry trends, while another projects 5% based on the company's historical volatility.
Discount rate selection involves professional judgment on cost of equity, cost of debt, capital structure, and company-specific risk premiums, all of which can legitimately vary between valuators. In a discounted cash flow approach, even a small difference in the discount rate can change the value materially.
Normalization adjustments to historical earnings — removing one-time expenses, adjusting owner compensation to market rates, excluding non-operating assets — commonly require judgment and can differ between valuators reviewing the same financial statements. For example, one CBV may adjust owner compensation from $250,000 to a market rate of $150,000, adding $100,000 to normalized earnings, while another may conclude $175,000 is market rate, adding only $75,000.
Selection of comparable companies or transactions in the market approach typically involves judgment about what constitutes a true comparable in terms of industry, size, geography, growth profile, and profitability. A valuator selecting comparables from a narrower set of high-growth SaaS companies will derive a different multiple than one including mature software services businesses in the comparison set.
Weighing Methods Differently
For example, the same business may receive a value of $3.2M under the income approach, $2.8M under the market approach, and $2.5M under the asset-based approach. For example, one CBV may weight the income approach at 60% and the market approach at 40%, arriving at $3.04M. For example, another may weight them equally, arriving at $3.0M, or emphasize the market approach at 70%, arriving at $2.92M. All three conclusions are defensible if the weighting rationale is disclosed and reasonable for the business type and valuation purpose.
When Differences Signal a Problem vs. Professional Judgment
Legitimate differences in valuation conclusions are expected when valuators apply professional judgment to assumptions. Large differences may warrant review of methodology or assumptions for errors.
The same CBV may arrive at different values for the same business depending on the valuation standard applied: fair market value, fair value, notional market value, or liquidation value. Fair market value assumes a hypothetical willing buyer and willing seller, both acting knowledgeably and prudently, under no compulsion to transact. Notional market value — used in shareholder oppression or dissent cases — may exclude certain control premiums or minority discounts that would apply under fair market value.
A valuation for tax planning purposes typically minimizes value conservatively to reduce deemed disposition tax, while a valuation for sale maximization may emphasize upside potential to justify a higher asking price. These are different mandates producing legitimately different conclusions for the same business.
If two CBVs produce values far apart using the same valuation standard and purpose, the business owner should review the disclosed assumptions in both reports to identify where judgment diverged. Common culprits: discount rate selection, revenue growth projections, normalization adjustments, and comparable selection.
This article is for informational purposes only and does not constitute financial, legal, or business advice. Every business valuation is different. Before making decisions about valuation methodology or engaging a valuator, consult a qualified CBV familiar with your specific situation.
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