How Can a Family Assess Whether a Private Market Valuation Is Realistic?

A private market valuation is an estimate, so a family should understand the assumptions behind it and test whether they fit the asset's actual performance. I would ask who prepared the valuation, what information they used, and what would cause the value to be lower in a sale.

Understand the Method and Assumptions

Start by identifying the valuation method. A business may be assessed using a multiple of earnings, a comparison with other transactions, or an estimate of future cash flows. Real estate and other assets may use different methods. Ask which inputs matter most, how they were selected, and whether the person preparing the estimate has a relationship that could affect their judgment.

For a company, review revenue, profitability, debt, customer concentration, and the assumptions for future growth or cost savings. Buyers may pay a multiple of EBITDA, but a higher earnings figure does not automatically mean a higher realizable price. The quality and durability of those earnings matter, as do the market conditions and the likely pool of buyers.

Compare Paper Value With Evidence

Compare the stated valuation with operating results, financing terms, and relevant transactions when good comparisons exist. Be careful about relying on a single transaction if the company, timing, or rights differ. A minority interest may not have the same value as control of the business. A fund interest may also be worth less than the reported value of its underlying assets if transfer restrictions and limited liquidity constrain a buyer.

Ask whether the valuation reflects current information or whether important events have occurred since it was prepared. Look for changes in revenue, debt, customer relationships, occupancy, or the status of a planned exit. If a valuation cannot be tied to observable assumptions, treat it as less certain and document why.

Track Uncertainty and Liquidity

Use consistent methods over time so the family can distinguish changes in the asset from changes in valuation assumptions. Keep a record of the valuation date, method, source data, and material judgments. Where appropriate, ask an independent professional to review the work. Private assets can be difficult to value, and a family office may need outside expertise for asset specific assessments.

Keep valuation separate from liquidity planning. A reported value does not mean you can sell quickly at that amount. Consider the time, costs, and discounts that could apply in a sale, and plan cash needs around what is actually accessible. Our guide to planning for assets that take years to sell covers that issue.

Make the Estimate Useful for Decisions

A valuation should inform portfolio decisions, reporting, and risk review, not create false precision. Record the range of outcomes that could follow from different assumptions and identify the evidence that would change your view. When legal or tax treatment depends on the value, talk with your attorney and CPA.

For related context, see valuation methods for private assets, evaluating whether a strategy is working, and portfolio models for a family office.

Importantly, EBITDA is a key to valuing a company in a sale or exit, and buyers often pay a multiple of EBITDA when acquiring a company.

Sources: The Single Family Office. Informational only, not financial, legal or tax advice.