|Divorce Business and Asset Valuation|
Business Valuation & Asset Valuation
for Divorce and Other Cases
Too often, the parties (plaintiffs, defendants, attorneys, jurors, judges, family, friends) involved in a case lack the unique financial background that allows a thorough understanding of a case's financial merits. Interestingly, even a company-owner is rarely in a position to guide value discussions due to a lack of objectivity and a lack of experience in this very specialized type of work.
Many times, the temptation is to involve an accountant, but this may not be the best choice. The challenge of valuing business and financial assets is complicated by the fact that the process always starts with accounting numbers. Here's the problem - accounting numbers look backwards, reflecting history, while valuation (if done correctly) is forward-looking.
Why Do You Need a Highly Experienced and Qualified Expert?
First - The Need for Adjustments to the Accounting Numbers
While it's imperative that a valuation expert fully understand the accounting numbers, it is even more important that they know how to develop supportable financial projections. This often requires restating the accounting numbers so that they accurately reflect the economic reality of the business operation.
The most common example of why this need arises is tax considerations. Many businesses are operated in such a way as to minimize annual tax liabilities. Thus, income may be significantly understated from what might otherwise be reportable. Likewise, there are other cases where income may be overstated. In order to accurately prepare a valuation, influences which don't reflect true economic reality need to be adjusted out of the numbers.
Second - The Need for Credible Projections
Sure, anyone can prepare a projection. The key question to ask is -- Is it going to be credible and defensible? Accountants are trained to assemble and verify historical numbers. Chartered Financial Analyst (CFA) charterholders are trained to look into the future and assess value. The discipline of finance is different from accounting in that finance is forward-looking.
Third - The Need for a Credible Valuation
Just because you have a quality set of projections to work from doesn't mean you'll end up with a quality, credible valuation.
In order to appropriately determine value, the following factors need to be considered:
Again, a Chartered Financial Analyst is specifically trained to gather, assess and weigh these factors.
Fourth - The Need for Insightful, Creative Approaches
There are many books which detail the different "standard" approaches to valuation. However, what is often missed is a solid understanding of the strengths and weaknesses of each different approach.
Although a hammer is a wonderful tool, it is generally not the best choice for repairing a leaky faucet. Likewise, the tools of valuation are specialized and need to be selected carefully with a full understanding of their capabilities (or lack thereof). This knowledge is of particular value when refuting the opposing side's valuation or approaches.
Also, just like there are few "standard" cases, there are few standard valuation situations. Every business or asset is unique. What's important to understand is that the differences, not the similarities, have the most significant impact on value.
Fifth - The Need for Exceptional Communication Skills
Cases are often emotionally charged. Add this to the discussion of unfamiliar, complex financial matters and communication can easily breakdown.
Whether you simply need a valuation and expert witness services or are interested in a broader range of litigation support services, Bill McGinnis is available to assist you. His significant background in complex financial matters provides an ideal background to clarify your case.
The following article, authored by Bill McGinnis and published in the Small Business Times on May 28, 2004, explains how to select a business valuation expert -
|Professional - Qualified - Credible|
Copyright © 2003 and 2012 by W. McGinnis Advisors, LLC