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