Do’s & Don’ts with Forecasting to Determine Valuations

Do’s & Don’ts with Forecasting to Determine Valuations

Shoot the Moon
Shoot the Moon
Do's & Don'ts with Forecasting to Determine Valuations
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We are often faced with the overwhelming influence from sellers to put aggressive weighting on financial forecasting when it comes to determining valuations. The reality is that while forecasting has a significant impact in determining valuations it doesn’t always have a positive impact.

Points we discuss in this episode:

  • Forward-looking performance of the company can be incorporated into earnout type structures
  • Forecasts can shed light on new business lines maturing and becoming a more meaningful part of the financial picture
  • Forecasts provide buyers with the information they need to make assumptions on a combined businesses performance
  • Forecasts that are in line with historical performance are more likely to be weighted vs those with major spikes in performance
  • Forecasts containing major reductions in OpEx to achieve a new degree of EBITDA need clear understanding and in many cases require some historical proof points to be considered in valuations.
  • Forecasts with major upward shifts in revenue without any historical performance to support the improvement will almost certainly be discounted
  • Forecasts are an important part of valuations when the combination currency is stock/equity.  Mergers and acquisitions that are funded by stock almost always allow for a more aggressive valuation based on future performance

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