View on Valuations: Chicken Little

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In my opinion, Chicken Little has gotten a bad rap ever since he uttered the infamous line, “the sky is falling”.  More and more financial experts and professional prognosticators are pointing to numerous indicators that an economic downturn is imminent and that our extended period of economic expansion will stop.   Yes, hindsight is 20/20 and one day we will all look back and jump on Chicken Little’s bandwagon as we will see that our economic sky has fallen. 

In the assessment of the future income stream of a business, I become skeptical when a business owner projects hockey stick growth patterns into the future.  And even those who are somewhat more reasonable and recognize that good times will eventually end often don’t fully project a true economic downturn. 

2007 and 2008 are not that long ago when we suffered our last major economic contraction but we as business valuators must be realistic and recognize the Mr. Little did have some credibility which we should account for and recognize in our forecasting into the near term.  Who knows what tomorrow my hold and many see growing cracks in our economic blue sky.

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