WATCH: Business Valuation Past, Present, and Future

In this interview, business valuation expert Jay Fishman discusses the changes, improvements, and challenges of valuation for marital dissolution with Family Lawyer Magazine‘s Diana Shepherd.

I’m Diana Shepherd, the Editorial Director of Family Lawyer Magazine. Today, I’m going to be speaking with Jay Fishman about “Business Valuation in the Past, Present, and Future.” Jay has been actively engaged in the appraisal profession since 1974, specializing in the valuations of business enterprises and their intangible assets. A Fellow of both the American Society of Appraisers and the Royal Institution of Chartered Surveyors, he’s also a Past Chair of the ASAs Business Valuation Committee. He has taught courses on business valuation for the IRS, the AICPA, the National Judicial College, and the World Bank among others. Welcome, Jay.

Jay Fishman: Thanks, Diana.

Diana Shepherd: Let’s start with the past. What are the biggest challenges and advancements the business valuation profession saw over the last few years, especially since 2020?

Prior to 2020, what I have seen happen is there’s been a tremendous explosion of information. When I started a long time ago, there wasn’t anything like that. Now there are courses, books, webinars, and papers constantly coming out. Sometimes, it’s too much because there’s so much to go through. You don’t know what’s helping and what’s not helping.

Since February of 2020, there have been remarkable changes, both impacting what values are and what business valuation techniques are, and how we’re conducting our practice. I have been working almost entirely from home since March of 2020, and frankly enjoying it. I’ve had trials via Zoom. I’ve taken depositions via Zoom, and I think I’m going to talk about our practice first. The bad thing is that it’s harder to interact with some of the younger people.

There’s something to be said about sitting around a conference room and going over ideas. There’s been good and bad. My travel schedule has been wonderful. I used to travel 100,000 miles a year; now, it’s a long day for me to go to the office, which is about a half-hour away. I think gradually now we’re starting to open up the world.

As far as impacting business valuation, value is a prophecy into the future. It’s the present worth of future benefits. If you could tell the future, or if I could tell the future with a certain degree of certainty, we wouldn’t be doing this webinar. We’d be on a beach somewhere.

I think the biggest thing I’ve seen is it’s going to be very hard to use a single period and say, that’s what’s normal today. I think you’re going to have to do a multi-period model because we are not sure when this is going to turn around. Perhaps now we’ve got more demand, but we’ve also got supply chain issues and inflation. Unfortunately, we now have a war. I’m – sure that 2022 is going to be a base year from which to predict almost anything. Years ago, McKinsey published when they thought certain industries would come back – and of course, there have been ebbs and flows. People are starting to travel and then they stop traveling. There are all kinds of disruptions.

To answer your question, the challenges currently are both internal and external. Internally, how do you put together a cohesive team if you’re all going to be remote, or you’re going to see each other only on a periodic basis? And externally, what is the future of our client’s business? It would depend on what industry they’re in. It depends on how the macroeconomic factors impact them.

You can’t just say, “The business did this amount this year and I’m going to multiply it by something, and that’s going to be the value,” because we haven’t reached a stable point from which to estimate the future.

What are the current divorce-related valuation hot button issues in 2022?

Some of them haven’t changed. I was thinking about this earlier. The first is the separation of personal from enterprise goodwill. Some states say that if goodwill, which is the expectancy of repeat patronage, belongs to the person, then that’s not marital property. On the other hand, if it belongs to an institution, then that could be marital property.

Every business has a transition. The example I use is the Mayo brothers, who started the Mayo Clinic. But now you go up and ask for a Mayo brother and they give you a cough drop. The bottom line is, that they’ve institutionalized the business.

Separating those two has been a very difficult thing. There’s been some work done about it. Sometimes it’s just an allocation or a purchase price issue. Naturally, in those states that make that differentiation, every titled spouse says that he or she has personal goodwill, and isn’t worth anything.

The first thing you have to do is figure out does it exist – how does it exist – and take it from there. Different techniques are used; some of them are easy, and some of them are not easy. Some of them are expensive. There isn’t a lot of case law out there state by state, which gives you a model for how to do it. You’ve got to find your own way and make sure that you’re internally consistent.

The second issue is the issue of active versus passive increases in property. Property acquired before marriage in many states is not marital property, but the active appreciation in that can be marital property.

What’s active and what’s passive in an active business? By definition, a business operates as a going concern, so you’ve got to figure out whether there are elements of activity, or are there elements of passivity? You look at how the business is run and how the business is managed. To me, passivity comes from two points. One is the external issue: that is, the change in interest rates or the change in the supply chain, but also the activity of others doesn’t count as your activity. That’s hard to do as well. There’ve been many studies. My friend Ashok Abbott has done some work on that, but again, I’ve yet to see a satisfactory case decision, and everything is unique. That’s what makes it so difficult. Those are the two biggest things I see.

If you had the power to change anything about the current valuation profession and/or practice what would it be and why?

I see two things, and the reason why being a business appraiser for a person like me is cool is because I get to see how hundreds of businesses work over the years – seeing an entrepreneur who started their business with nothing and built it up to something. How a family succeeded or didn’t succeed in changing its management.

I think the one thing I would be critical about of my brethren is that it’s become a little too cookie-cutter. There isn’t that intellectual quest to understand, how does this really work? I’m going to use this formula. I’m going to use this piece of information — and sometimes they don’t put it all together.

That’s the interesting part of being a business appraiser. Tomorrow I could be looking at a law practice, and next week I could be looking at a high-tech company or a personality. I think we need to spend more time doing that and less time cranking in macroeconomic variables and models that say whether the specific company risk premium is six or ten.
All of that starts with understanding the business. I live by a phrase that a lawyer from Chicago taught me 30 years ago. “Jay,” he said, “the expert that knows the business best is the most persuasive, is the most credible.” I think that that’s what I would ask people to do.

What I’m heartened about is that there are a lot of younger people getting into the profession. They seem to be very eager and they’re doing a lot of work. We just lost my dear friend last year, Shannon Pratt, who created the business valuation business in his own way, and he’ll be missed. I’ll miss him personally, but I see the next generation coming up.

This is my 47th year. Those of us who have been in the business a long time feel that we have a responsibility to create opportunities for the next generation and to the extent necessary to counsel them. Those are the two things that I see.

Looking into your metaphorical crystal ball, where do you see the business valuation practice and profession moving over the next 10 years?

It comes to much of what I’ve said before. I think more attention is going to be paid to the forensic accounting side of the business. I think that when economics are tough, there’s a lot more demand for lifestyle analysis and the calculation of maintenance. Those kinds of things are important.

Plugging numbers into a program and coming out with a good answer is not going to work all the time. It may work sometimes, but getting to understand the business is crucial, and those who don’t are missing a great opportunity. I ask a lot of questions about how the business started.

Looking forward, those are the things that I see.

If you could give one piece of advice to family lawyers to help their clients – and to help business valuators do the best possible job for them – what would it be?

I’m asked that a lot by my clients. In the matrimonial area, as the family lawyer and the expert, we have a partnership. Their job is to give me business. My job is to make them look good and make sure I give them a credible valuation.

One of the things I suggest to younger family lawyers is to make relationships with experts. Experts want your business. They’ll want to come out and meet with you. None of the Deans that I worked with in the old days were bashful about calling me on a weekend, saying, “What is this discount rate stuff? Can you please explain it to me?” Or, “Where did you get that reasonable compensation number?”

I would advise family lawyers to create relationships with your experts. And it’s probably better not to have just one go-to expert – it’s better to have a stable of experts. This person is good about these things, this person is good about that. She may be an expert on hedge funds, for example. I would spend my time evaluating which experts belong where and finding out about them as people. You could be an expert and you could be extremely competent technically, but unless you’re able to explain it to the lawyer, the client, and ultimately the judge – and in some states in the United States, the jury – then that message is going to get lost.

That’s how I see us prospering in that relationship going forward.

Great answer. My guest today has been Jay Fishman, FASA, MBA, and a Managing Director of Financial Research Associates. He is also the Editor of the Business Valuation Review: a comprehensive journal with articles by top thought leaders in the profession. In 2020, the American Society of Appraisers gave him their Lifetime Achievement Award in recognition of his outstanding services in the Society and contributions to the appraisal profession. Jay has co-authored several books, including The Business Valuation Bench Book, A Consensus View Q&A Guide to Financial Valuation, and Standards of Value: Theory and Applications (all available at He can be reached via his website, Thank you, Jay, for taking the time to share your thoughts with us today! 

Thank you for having me.