Have you heard of ChatGPT? It’s been the talk of the town this year. The other day, my friend asked me if I thought AI would take over my job as a business valuation analyst. I paused for a second, chuckled, and replied, “AI could definitely help us become more efficient but I don’t think I’ll be out of a job just yet!”

Here is why. Imagine you’re trying to sell your car, and you want to know its value. You decide to use an AI-powered tool to get an estimate. You enter all the relevant information about the car, such as the make and model, year, and mileage, and hit the “calculate” button.

The AI tool quickly analyzes the data and provides you with a valuation estimate. But as you look at the number, you can’t help but wonder: is this really accurate? How did AI come up with this value? And what about all the intangible factors that can affect the car’s value, like its reputation for reliability?

The same is true for business valuations. While AI can analyze vast amounts of data and provide quick valuations, it lacks the context and nuance that only a human expert can provide. For example, an AI tool might be able to analyze a company’s financial statements and market data to estimate its value, but it can’t fully account for factors like the company’s reputation, management team, understanding of the industry, competitive landscape, and other qualitative factors, which are challenging for AI to capture accurately.

In addition, anyone who understands business valuation knows it is science AND art and it usually falls within a range of reasonableness. Business valuations require complex decision-making that takes into account various factors, including historical performance, future growth prospects, market trends, company-specific risk factors, and more. While AI can be trained to analyze and evaluate multiple data points, it cannot fully replicate human decision-making and judgment.

Moreover, AI-powered valuations often lack transparency, meaning that it can be difficult to understand how the algorithm arrived at a specific valuation without much rationale provided. A quality valuation expert, on the other hand, plays a crucial role in helping clients understand the valuation process and the reasoning behind the final figure. We always provide a detailed explanation of the factors that influenced the valuation, highlighting any risks, opportunities or other considerations that may have affected the final valuation figure. By providing this rationale, clients can gain a better understanding of the value of their business or securities and make more informed decisions based on that information.

After all, business valuations require more than just crunching numbers; they require a holistic understanding of the business and its place in the larger market. While AI can assist in certain aspects of business valuation, it is not yet advanced enough to replace human expertise and judgment fully. As the saying goes, sometimes you just can’t beat the human touch.