Valuation mastery isn't just about applying methods correctly - it's about catching mistakes before they become expensive errors.
Even seasoned professionals use systematic quality control checks to validate their work and ensure conclusions pass the "smell test."
Engagement Message
Why might even expert valuers need systematic quality checks?
Start with basic sanity checks. Does your valuation conclusion make intuitive sense? If you valued a small local restaurant at $10 million, that should trigger immediate skepticism.
Common sense remains your most powerful quality control tool.
Engagement Message
What would be your first reaction to valuing a corner barber shop at $5 million?
Industry benchmarking provides crucial reality checks. If comparable restaurants sell for 2-3x revenue, but your conclusion implies 8x revenue, investigate immediately.
Large deviations from industry norms require strong justification or indicate calculation errors.
Engagement Message
If your tech startup valuation seems 5x higher than industry averages, what should you do first?
Watch for these common red flags: Discount rates below risk-free rates, growth rates exceeding GDP indefinitely, or margins dramatically above industry averages.
Each of these suggests either input errors or overly optimistic assumptions that need correction.
Engagement Message
Name one red flag that would make you question a valuation's assumptions.
Cross-validate using multiple metrics. If your DCF suggests $2M value, check what that implies for revenue multiples, EBITDA multiples, and price-to-book ratios.
Inconsistencies across metrics often reveal hidden errors in your analysis.
Engagement Message
Why is checking multiple ratios better than relying on just one valuation metric?
