While interviews are not always feasible—such as in divorce-related valuations, where contentious situations and attempts at deception may be more prevalent—a skilled business valuator must navigate any information deficits and perform due diligence to the best of their ability.
In other scenarios, conducting an interview is crucial whenever possible. The value of understanding the business on a deeper level can never be overstated. It’s not simply about reviewing financials from a distance—it’s about gaining direct insight and context behind the numbers.
Omitting the interview process, where critical discussions about the business’s successes, failures, and the reasons behind them take place, can severely hinder the accuracy of normalizing adjustments and appropriate weighting of financial data.
These factors are what truly impact business valuations in real-world transactions. Unfortunately, some valuators take shortcuts by relying on semi-automated methods, such as predetermined formulas, industry averages, or compilation of studies, rather than fully engaging with the business itself.
This approach violates the intent behind IRS Revenue Ruling 59-60, which emphasizes the importance of a thorough, fact-based analysis over the use of standardized formulas or external data that may not accurately reflect the unique circumstances of the business being valued.
