Short answer: probably for about a year.
Longer answer: it depends. Read on!
Business valuations are always completed for 1) a particular purpose and 2) at a specific point in time. While a valuation will take into account a wide range of data – future projections, management’s past ability to hit projections, prior performance, structural trends in an industry – it remains that the valuation is as of a certain date.
For instance, here is what the ASA has to say on valuations:[blockquote]The determination of value for a business is always done as of a specific date; however, the final opinion of value most always considers historical information as well as the future projections about the subject company and its industry. Each day there could be slight modifications of value due to changes in the capital structure of the company; however, in general practice, if there are been no significant changes in the operations of the business or its capital structure, annual updates may satisfy most uses of the appraisal report.[/blockquote]
So How Long?
We generally say “about a year.” This assumes that nothing has materially changed that would impact our analysis. For example:
- Has something happened to materially impact revenues? Or earnings?
- Has there been a change of control?
- Is there a new management team?
- Loss of a key sales person?
- Legislation that has a material impact on your industry?
Any of the above might impact the validity of a valuation inside the one year period.
How Can a Change in Purpose Effect Value?
One thing many people don’t consider is the impact that “purpose” has on the validity of a valuation. For instance, we are likely to arrive at vastly different conclusions if a valuation is done for a minority buyout vs. a strategic purchaser. Understanding the context of the valuation is critical – and by default, a change in context (or purpose) is likely to impact value.
Regardless of the foregoing, the easiest thing to do is ask your analyst. We’re always happy to discuss your circumstances. If things have changed enough to warrant a new engagement we’ll let you know. Likewise, we’ll be happy to let you know if we think your report is still valid.