We are getting wildly different valuations from the Capitalization of Earnings Method and the Guideline Transaction Method. How do we reconcile these two valuation approaches under IVS 105 to establish a defensible asking price?

Question

Tyler Smith · Accepted Answer

It is common for different valuation methods to yield divergent results, especially when market transaction data is noisy. Reconciling these approaches under IVS 105 requires a systematic evaluation of the quality and relevance of your inputs. Start by analyzing your Capitalization of Earnings calculation. This method relies on your internal, historical cash flows and assumes they will continue at a stable rate. Ensure your normalized earnings are clean and fully adjusted for non-recurring owner expenses. Next, look at your Guideline Transaction Method inputs. Are the peer companies truly comparable in size, geography, and operational efficiency, or are you comparing your lean, automated operation to low-margin, manual competitors? To reconcile the two, apply a weighted-average approach based on data reliability. If your peer transaction data is weak or outdated, place higher weight on your capitalization of earnings, which is grounded in your actual, auditable financial performance. Present this reconciliation transparently to buyers. Show how your automated workflows and structured operating model yield superior margins compared to the industry averages found in public guidelines. By justifying your weightings using solid operational metrics, you establish an airtight, defensible asking price that buyers cannot easily dismantle during due diligence.