I was recently engage to give an expert opinion on the value of a business for the purposes of a family law dispute. For anybody who has been through the process of a marriage breakdown you would understand how stressful a time this is for all involved. Adding the uncertainty of the value of the family business can increase the stress levels substantially. Everyone has an opinion and depending which side of the fence you sit on, everyone’s opinion greatly differs from yours.
I was engaged by the lawyers acting for the husband and was sent through a heap of financial statements and very little else. I had not previously dealt with this person, had no background information about this person or the business and still would not know them if we tripped over each other in the street. After taking all of that into consideration it would be reasonable to expect that we would have a lot of difficulty in getting this valuation off the ground. In fact, the exact opposite is true. Independence is the cornerstone to every valuation and there is no better way to maintain independence if you have no previous background with the client. When presenting a valuation in an emotionally charged environment such as a family law setting, if you can’t prove your independence to the matter then the valuation falls over before anybody has even read it.
We spend a lot of time ensuring our valuations are prepared in accordance with APES 225, to the point where we had our work independently checked by an external advisor, at our own cost, to ensure it would stand up to questioning. This would prove very important later on.
Unfortunately, but not unexpectedly, the other party to the dispute challenged our valuation as being too low and engaged their own valuer to perform their own valuation to sit next to ours for comparison. The values we each assigned were wildly different and left the family law proceedings at a stalemate. We were instructed to engage in a process between ourselves to identify and sort out the differences in our valuations and report back to the court.
Where we disagreed was in our opinion of the value of the plant & equipment. The business owns and operates a substantial amount of equipment, which I assessed at auction realisation value, which I justified by my assessment that it was not reasonable to assess this business on the basis of a going concern. The valuer acting for the other side did assess the business on the basis of a going concern and concluded that plant & equipment should be assessed at fair market value, which I considered to be impractical.
Whilst we agreed to disagree we did decide to stand our ground and rely on our process and our independence to back up the reasons behind our valuation being assessed at a lower point then the other parties opinion. Luckily for us, our methodology stood up before the judge and the matter was resolved in favour of our client.
DHM Partners can provide valuation services for any business and in many different circumstances. Family law, business purchase or sale, transfers of assets between related parties are just a few of these situations. If you wish to discuss the process we go through please call through the office for a coffee and a chat.