Business Valuation Critique
Before the relationship break-up, who cared what benefits the family received from the family business.
However, in the 'light of day" after the relationship ceased; such benefits can have material implications for the business valuation.
For example: excess salaries, luxury cars, and mortgages over the family home; and the reverse, where insufficient shareholder salary was paid for the time spent working within the business, especially if the business is claimed as separate property.
The Family Business - A valuable relationship property asset
In many cases, valuation of the family business becomes a material aspect of the relationship property case.
The partner who operates the business tends to wish to retain ownership.
Valuations provided by either side may require to be critiqued; due to the valuation method applied, the underlying assumptions, and the adjustments required to be made; as well as inconsistent method applications to contend with.
As a result there can be significant business valuation variances; and therefore, much debate; and perhaps a court hearing to decide the business or company value.
Sutherland Forensic carry out valuations; and would recommend including a critique of the valuation provided by the other side; should the two valuations be materially at odds.
Over the years Hugh Sutherland has acted for parties on either side of the case; whether for the applicant or for the respondent; and provided expert testimony to the Court.
Valuation Methodologies or Approaches to valuing the Business
The forensic valuation approach to valuations means adjusting the financial statements; and assessing many of the shareholder benefits, current accounts, mortgages over the family home; and salaries for reasonableness.
Under the "new light of day", it was okay while the relationship existed; but upon separation such amounts need to be re-assessed; so as to derive a reasonable business valuation for a fair division of relationship property.
There are many valuation methods; the common methods applied in the Courts are variations of:
1. Net Assets; or book value
2. Capitalisation of Earnings
3. Earnngs or EBITDA
3. Enterprise value