As experienced professionals in family law, you understand the crucial role that business valuations play in resolving complex financial matters during divorce proceedings. The precision and reliability of these valuations are essential, yet they often present challenges that require not only legal acumen but also a deep understanding of valuation practices. Let’s delve into three vital considerations that you, as solicitors, must keep in mind when reading a business valuation report.
- Evidence-Based Opinions: Is the Valuation Grounded in Verifiable Data?
When scrutinising a business valuation, a fundamental question arises: Is the opinion formed based on solid, verifiable evidence? A credible valuation must reference recent and frequent transactions of comparable businesses—those that genuinely reflect the market conditions relevant to your client’s business. This ensures that the valuation is not only reasonable but also defensible.
Understanding the specific type of business and identifying key segments that serve as reference points are critical steps in this process. If there is an active market and comparable transactions are available, the valuer can justifiably apply the Market Approach to determine the business’s value. This approach hinges on the existence of reliable and comparable data, making it essential to establish that these benchmarks are truly reflective of the business in question. Without such evidence, the valuation may be vulnerable to challenge.
- Justification and Data Integrity: Is the Methodology Defensible?
In assessing a valuation report, another critical consideration is whether there is clear and explicit justification not only for the chosen methodology but also for the data used in comparisons. Here, the question becomes: Is the valuation approach supported by robust and transparent data, or is it merely an exercise in professional judgment?
The reliance on a valuer’s experience, without corroborating evidence, introduces significant risk—particularly when the Market Approach is employed. It’s important to note that neither the Federal Circuit Court Rules nor relevant valuation standards permit an expert to base their opinion solely on experience. This becomes even more pertinent from January 2025, when heightened scrutiny will be applied where comparable transactions or observable market data are weak or absent. A valuation founded on such tenuous grounds opens multiple avenues for challenge, potentially undermining the credibility of the entire report.
- Transparency and Documentation: Is the Input Data Accurate and Complete?
Finally, it’s imperative to consider the thoroughness of the valuer’s data collection and documentation. Is the input information accurate, complete, and time-relevant? These characteristics are the foundation of a transparent and credible valuation opinion.
Valuers are now required to not only collect and hold relevant input information but also to clearly document the sources of these inputs and the rationale behind their use. This level of transparency ensures that every adjustment and justification within the valuation report is well-reasoned and clearly articulated. While the Market Approach can be a suitable method under certain conditions, it should not be seen as universally preferred. The key lies in aligning the chosen valuation approach with the unique characteristics of the business and the availability of reliable data, ensuring that the valuation is both accurate and defensible.
Conclusion: Engage with Negotia Group for Expert Valuations
In the intricate landscape of family law, where the courts demand transparent evidence, substandard business valuations can significantly and adversely impact outcomes. Partnering with a trusted expert is invaluable. At Negotia Group, we are committed to providing you with valuations that are meticulously crafted, transparent, and aligned with the highest standards of practice. Engage with us to ensure that every valuation you rely on is robust, reliable, and tailored to meet the specific needs of your clients.
Do you want to know more? Kevin Lovewell is an Accountant and Registered Business Valuer – He works as a business intermediary acting as various seller or buyer agents and as the principal agent in complex M&A projects; he is an active business valuer in the Small to Medium (SME) Market regularly undertaking work in appraising SME businesses for their market value.
Kevin Lovewell
M: 0401 308 385
P: 1300 551 757
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers
Jessica Holbrook
P: 1300 551 757
E: Click here to contact Negotia Group
Business Analyst
