Business Valuations

A business valuation is a process of determining the economic worth of your business. It involves normalizing the earnings of a business to reflect the ongoing future maintainable level of earnings and applying multiples to the earnings level that consider the positive and negative risk factors associated with realizing the maintainable level of earnings.

In a litigation context, business valuations are needed in circumstances of divorce proceedings, shareholder disputes, and loss of profit matters. Business valuations are also needed for purposes of succession planning, shareholder buyouts, corporate re-organizations, income tax, goodwill impairment/financial accounting valuations, intellectual property valuation and strategic planning.

A business valuation begins with deciding on the valuation date(s), the percentage interest to be valued and the type of deliverable required. The valuation process involves collecting relevant information, analyzing financial statements and other data, conducting industry research, discussing valuation issues, and preparing the valuation analysis and report.

There are three types of valuation reports: (i) Calculation, (ii) Estimate and (iii) Comprehensive. The type of valuation report is dependent on the nature of the engagement. Calculation reports provide the lowest level of review and corroboration of relevant information, whereas Estimate reports and Comprehensive reports provide higher levels of scope of review and assurance.

The valuations team also provides expert loss quantification reports required for litigation cases involving breach of contract, construction damages, breach of fiduciary duty, loss of profit, fraud/forensic accounting, misappropriation of funds, etc. In these cases, an expert report is prepared for court, arbitration or mediation purposes.

Our valuation and expert reports are prepared objectively and independently for litigation purposes. We provide expert witness testimony, critiques of opposing experts’ reports, assistance with examinations for discovery, and cross-examinations at trial.

A proper business valuation is a complex process that requires expertise in generally accepted valuation principles and their application. In the case of a shareholder dispute, the purpose of a valuation is to determine how much the shares are worth, at a certain point in time, so that an equitable buy-out can be facilitated.

Special considerations – including the practical realities of tax issues related to the sale of shares, determining the effective date of the valuation, and whether a minority discount should apply – must be made when preparing business valuation reports for shareholder disputes.