What breaks a valuation?

Most valuations look credible on paper. The problem is that paper doesn’t ask questions. Valuations are rarely challenged because they are “wrong”. They are challenged because they are not defensible.

That distinction matters more than most people think. A valuation is not just a number. It is an argument, and like any argument, it has to hold up when someone pushes back. In litigation, in due diligence, in a tax audit, or in front of a judge, the question is not only “what did you conclude?” but “how did you get there, and can you justify every step?”

After working across transactions, disputes, and regulatory submissions in multiple jurisdictions around the world, certain failure patterns appear with uncomfortable regularity. They are rarely about the maths. They are almost always about process, documentation, and independence.

1. Inconsistent assumptions and narrative

A valuation tells a story about a business. The numbers have to match the story. When an analyst describes a business as high-growth and resilient in the narrative section, then applies discount rates and growth assumptions that imply the opposite, the document contradicts itself. That inconsistency is often the first thing a scrutinising party will identify, and it undermines the entire report, not just the section where the error sits.

2. Unsupported discount rates and multiples

Selecting a capitalisation rate or EBITDA multiple without evidencing why that rate applies to this business, in this sector, at this point in time, is one of the most common sources of challenge. “Industry standard” is not an argument. Comparable transaction data, sector benchmarks, and specific risk factors all need to be documented and linked to the conclusion.

3. Lack of independence

Advisor bias (whether real or perceived) is particularly damaging in dispute or regulatory contexts. If the valuer has a financial interest in the outcome, or a close relationship with the instructing party, the opinion starts from a compromised position. Independence is not just an ethical standard. It is a practical requirement for a valuation to carry weight with a third party.

4. Poor documentation and audit trail

A valuation that cannot be reconstructed from its working papers is a valuation that cannot be defended. If the data sources are unnamed, the adjustments are unexplained, and the model contains inputs that cannot be traced back to evidence, the conclusion is essentially unverifiable. Courts and tax authorities do not take well to “we used professional judgement” as the sole explanation for a significant assumption.

5. Misalignment with purpose

A value for tax purposes and a value for transaction purposes are not necessarily the same number, even for the same business on the same date. The standard of value, the basis of value, and the applicable guidance all differ depending on the purpose. Using a transaction-focused methodology for a regulatory submission, or vice versa, creates an immediate vulnerability. The purpose of the valuation should define the methodology, not the other way around. 

As we work in several markets around the world, it’s worth highlighting that these nuances differ depending on where you are. Perhaps the most interesting contrast is working in the USA vs the UK because the different contexts call for unique decision methodologies.

IRS scrutiny in the USA: documentation and consistency

In the United States, IRS challenges to valuations, particularly in estate and gift tax, charitable contribution, and business interest contexts, tend to focus on two things: whether the methodology is internally consistent, and whether every assumption is documented to a standard that can withstand examination. Valuations that deviate from its IRS revenue principles without explicit justification are exposed.

The IRS does not need to prove your number is wrong. It needs to demonstrate that your process was flawed. That is a lower bar, and experienced practitioners know it.

HMRC and the SJE standard in the UK: independence and neutrality

In the UK, HMRC disputes and court proceedings introduce a further layer of complexity: the Single Joint Expert (SJE) framework. Valuations used in litigation must comply with Civil Procedure Rules, and the expert’s overriding duty is to the court, not to the instructing party. A report written as an advocate for a client’s position will not survive that standard.

HMRC challenges often turn on the question of independence and the quality of comparable evidence. Thin comparables, undisclosed assumptions, and conclusions that conveniently support the taxpayer’s position are exactly what experienced HMRC valuers are trained to identify.

None of this is abstract. There are practical markers that distinguish a report built to withstand challenge from one that is not.

• The story and the numbers are aligned. The narrative describes the business in a way that the financial assumptions directly reflect. Risk factors mentioned in the qualitative section translate into specific adjustments in the model.

• Every significant assumption is sourced. Discount rates reference comparable data. Multiples are benchmarked against identifiable transactions or sector evidence. Adjustments are explained, not asserted.

• The valuer is independent, and the report says so. Particularly in dispute and tax contexts, the declaration of independence is not a formality. It is part of the opinion’s foundation.

• The purpose is stated and the methodology follows from it. The opening pages of a defensible report make clear what the valuation is for, what standard of value applies, and why the chosen methodology is appropriate given those parameters.

• Plain language is used throughout. Particularly in dispute resolution, a report that a non-specialist judge or arbitrator cannot follow is a report that will not be persuasive. Clarity is not a stylistic preference. It is a substantive requirement.

 We work diligently with all our clients to achieve these high standards and ensure that the valuations we contribute to are robust, defensible, and ultimately useful for achieving your goals, whatever they may be.

The crux of the matter is that if a valuation is ever likely to be challenged, it should be built that way from day one.

The cost of retrofitting defensibility into a valuation after a challenge has been raised is almost always higher than the cost of doing it properly at the outset: in time, in professional fees, and often in outcome. For advisors instructing valuations on behalf of clients, the question worth asking upfront is not just “what is the business worth?” but “under what circumstances might this number be questioned, and does this report survive that test?”

This mindset shift, alone, can make the world of difference.

Tax, Trusts & Consequences with Michelle Tickner

What really drives business value, and why it is often missed. In many transactions, disputes, and exits, the most important drivers of value are not immediately visible.

In our latest bizval podcast, Graham Stephen talks to Michelle Tickner, Director of Sentinel International about one of these critical, yet often overlooked areas.

What emerges from the conversation is a consistent pattern. Businesses underestimate the impact of this issue, advisors encounter it repeatedly, and its significance only becomes fully understood under pressure. Listen here.

From Springbok Nude Girls Manager to CEO, Mark Taylor’s Epic Journey

In this bizval podcast episode, Graham Stephen sits down with Mark Taylor - CEO of Cala Capital Africa for one of the most fascinating founder stories you’ll hear.

From managing the legendary South African rock band Springbok Nude Girls in the 90s, to being right-hand man to Johann Rupert at Richemont/Remgro, building one of Turkey’s largest public aquariums, and now leading one of Africa’s most respected private capital advisory firms, Mark’s journey is anything but conventional.

If you’re a founder, operator or capital allocator in Africa (or thinking about investing in Africa), this episode is pure gold. Listen Here.

Until next time,

The bizval team