If you have ever received two different valuations for the same business, your first reaction is usually: How can both be right? It is a fair question, and one that highlights a critical point about business valuation.

Conflicting valuations occur more often than most people expect, and in many cases, the discrepancy does not stem from a mistake. It comes down to professional judgment.

Business valuation is not a fixed formula; it is a professional opinion shaped by assumptions, adjustments, and experience.

Why Do Business Valuations Differ?

At a glance, valuing a business might seem straightforward: gather the financials, apply a method, and get a number. But in reality, several moving parts can lead to different results. These differences often start with the purpose of the valuation, which directly influences the standard of value being used.

The final number depends on four key elements:

  • The purpose of the valuation (such as a sale, litigation, or securing financing).
  • The standard of value being used (e.g., fair market value versus investment value).
  • How the company’s financials are adjusted.
  • Which specific valuation methods are selected.

Change any one of these core elements, and the conclusion can change, too.

What Causes Conflicting Business Valuations?

Let’s look at the primary sources of divergence that commonly impact a valuation.

1. Financial Adjustments Aren’t Always the Same

Most closely held businesses don’t have perfectly “clean” financials. A valuation professional will identify and normalize these items to reflect the true economic reality of the business. Items that often require adjustment include:

  • Personal expenses run through the business,
  • Owner compensation that is above or below market rates, and
  • One-time income or expenses that won’t repeat.

Because not every professional adjusts these items the same way, and automated tools may ingest unadjusted figures uncritically, this factor alone can lead to very different results.

2. Different Methods Lead to Different Results

There is more than one way to value a business, and the choice of methodology significantly impacts the outcome. The most common approaches are:

  • Income Approach: Based on projectable future earnings.
  • Market Approach: Based on comparable companies and transactions.
  • Asset Approach: Typically reserved for holding companies or distressed situations.

Each has its place, but a seasoned practitioner must select and weigh the approaches based on the specific facts of the engagement. Two professionals looking at the same business might choose different approaches or weigh them differently, which can change the final valuation conclusion.

3. Risk Is Interpreted Differently

Risk plays a large role in valuation through the discount and capitalization rates, and it is rarely obvious. Building a defensible cost of capital requires professional judgment to integrate various risk factors, including:

  • Risk-free rates and equity risk premia,
  • Size premia,
  • Company-specific risks (e.g., reliance on a key person or a major customer), and
  • Overall stability of the industry.

Because of this, even small differences in how company-specific risk is viewed can have a meaningful impact on the final value.

4. Judgment Still Drives the Process

Valuation is fundamentally a professional opinion. It requires more than just plugging numbers into a model; it demands:

  • Experience with similar businesses,
  • A deep understanding of industry dynamics, and
  • The ability to connect the numbers to the real story of the business.

That is why two qualified professionals can look at the exact same financial information and still see the business’s value differently.

Where AI Fits Into All of This – The Algorithm Doesn’t Know What It Doesn’t Know

AI and automated valuation tools are becoming more common, and in the hands of a credentialed practitioner, they can accelerate key tasks without sacrificing quality. They are excellent for:

  • Financial spreading and data organization.
  • Database research and running comparisons.
  • Speeding up report drafting.

However, these tools do not replace professional judgment. They rely entirely on the data and assumptions they’re built on. If key qualitative information is missing or if an input doesn’t accurately apply to your specific business, the automated output will be off.

What This Means for Business Owners

If you are faced with conflicting valuations, the goal is not just to pick a number. The primary focus should be understanding the professional judgment behind it.

You should ask essential questions of the preparer:

  • What specific adjustments were made to the financials, and what was the rationale?
  • Which valuation methods were used, and why were they selected over others?
  • What primary assumptions are driving the result, such as the discount rate or industry multiple?
  • Does this valuation match the specific legal or transactional purpose you need it for?

Those answers will tell you far more than the final number alone.

The Bottom Line

Conflicting business valuations are not unusual; they are a direct reflection of the nuanced professional judgment required in the process. The key is not just obtaining a valuation, but getting one that is clearly explained, fits your specific situation, and can hold up under scrutiny. At the end of the day, the specific value matters less than whether you can confidently rely on the professional opinion when it counts—whether for a transaction, a dispute, or a financing decision.

If you are navigating a business transition, shareholder dispute, or any scenario where reliable business valuation is critical, our team at LGA is ready to provide the professional insight you need.