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Data and technology

Has AI enabled or disrupted business valuation?

AI and automation have brought efficiencies to the business valuation process, introducing time-savings and enhanced data analytics capabilities. While innovation can be disruptive, CPAs and CBVs are adept at keeping pace with this technological change.

Generative AI—the AI system designed to create new content including text, images, music and code that is similar to existing data—skyrocketed to the top of executive agendas in 2023. It continues to dominate boardroom conversations in 2024 as businesses transition from experimentation to operational advantage. Meanwhile, business professionals are inundated with headlines that proclaim they may lose their jobs to GPTs and other AI technologies.  

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Chartered Business Valuators (CBVs), the Canadian business valuation professionals regulated by CBV Institute, have heard this refrain for decades and recognize that the volume has been amplified since GenAI became mainstream via ChatGPT. On the real property side, automated valuation models (AVMs) debuted in the 1950s as computer-assisted mass appraisals. On the business valuation side, automated business valuation software has been available since the 1980s. Today, even more software tools promise to perform valuations for accountants and business owners without the assistance of a business valuation expert. Just how good are they? Let’s dive into some capabilities and limitations. 

Data collection. Automation truly shines at the data input stage, where technology enables extraction from a wide variety of data sources, such as financial statements, shareholder agreements, customer contracts, tax or other regulatory filings, or meeting transcripts. Automating this (menial and repetitive) work significantly accelerates the process of moving from client intake to more meaningful conversations around the unique drivers of value.

Data analysis. AI greatly enhances the efficiency and robustness of predictive analytics and scenario analysis (e.g., Monte Carlo simulations), which are some of the more complex modelling techniques employed by business valuators. By making quick work of analyzing large datasets from various sources, AI can improve data insights and allow the valuator to focus on critical aspects, such as analyzing the reasonableness of inputs, assumptions and the conclusion of value—the “so what”.  

Report writing. Software programs designed specifically for business valuators help automate the report-writing process by entering data into a report template that has been customized by the business valuator to meet applicable laws, regulations and standards. This streamlines the valuation process, allowing valuators to communicate their insights and expertise more quickly. 

Real-time valuations.  Private markets, forecast to grow from $14.7 trillion (assets under management) to an estimated $20 trillion or more by 2028, require more frequent, robust and transparent fair value reporting for their private investment portfolios. These portfolios can include hundreds of private company investments across a variety of asset classes. Several technology solutions have been launched by experienced valuators who have partnered with AI experts to solve a pressing market need. 

Accurate valuations are vital to the integrity of both public and private capital markets, whether for the sale of a business, financial reporting or dispute resolution. While technology offers efficiencies, overreliance on AI and automation in business valuation can create several risks. Business valuation is not merely a mechanical process—it requires specialized training, informed professional judgment and a high degree of integrity and accuracy. 

Although “automated” might imply a fully complete process, when software completes a valuation with little to no human intervention, this is not the reality. The capabilities of AVMs and AI tools vary, and while each may facilitate the process to a different degree, all software-driven valuations ultimately require professional judgment and human oversight.  

Professional judgment is essential, for example, in choosing the appropriate valuation methodologies, normalizing financial statements, adjusting valuation metrics for specific risks, assessing intangible assets, and triangulating or calibrating valuations from different methodologies.  

Human oversight is crucial when considering the current limitations of automation and AI. Algorithms may work well on average, but is there such a thing as an average company? In addition, automated tools are only as good as the data they process. Inaccurate, incomplete, or biased data can lead to flawed valuations, with potentially severe consequences. As regulated professionals, CBVs remain accountable for the integrity of the data used in their analyses. 

In short, although technological advancements like AI and AVMs have become critical enablers to the valuation process, accredited business valuators remain essential to protecting the robustness and integrity of the overall process and resulting conclusions.  

There is no doubt that technology can be transformative, and that AI and automation are having a real impact on the valuation process across all asset classes. Although every business is unique, which presents its own valuation challenges, leveraging technology allows the valuator to focus on more strategically important work for the client. Given the competitive market for valuation professionals, the demand for technology-enabled solutions is not surprising. 

AI isn’t just having a moment—it’s permanently changing workflows for all professionals in the information economy. CBVs remain at the forefront of this trend, deploying the latest technology alongside real-life practical experience to put forward globally respected valuations of a business, its securities, and/or its assets.