Business Valuation in a COVID-19 World
COVID-19 is not only affecting the economy and financial markets but also a business’s viability and value for at least the near future. Future financial performance projections will be subject to greater scrutiny regarding the justification for future growth potential and the ability to maintain operations in an unpredictable environment. In a litigation setting, the stakes are higher, as every assumption in a business valuation will be thoroughly examined by opposing attorneys and experts and then carefully considered by a judge or jury.
Those of us who provide expert witness and business valuation services understand the need for a strong quantitative and qualitative basis for our opinions. In the current environment, our clients will be better served knowing the underlying assumptions and opinions in our valuations have been formulated with the anticipation of intense scrutiny from these parties. They also will need to be supported with the best available evidence and research as of the valuation date.
The assumptions and basis for opinions in a valuation are the responsibility of not only the valuation practitioner but the business owner as well. Comprehensive and accurate financial information regarding the business’s financial condition will greatly assist the practitioner in performing their work. Gaining an understanding of the assumptions, market research, and other considerations a business makes in formulating its own internal projections and business plans will aid the practitioner in conducting a valuation.
Ultimately, the practitioner, business owner, and counsel must all reach an agreement on the purpose of the valuation so the necessary information can be identified and analyzed. Transparency and collaboration from the parties involved will not only lead to reasonable and supportable opinions but also assist counsel in developing a strategy. In instances where the business owner is the opposing party in litigation, the appropriate information can be obtained through well-crafted document requests, interrogatories, and deposition questions. In these instances, educating counsel on the relevant financial concepts and issues will help them gain an understanding of why certain financial information is necessary for the valuation and should be obtained.
While the valuation opinion is ultimately the practitioner’s to develop and defend, working together as a cohesive team will help avoid potential problem areas that emerge during the litigation process.
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