Business Valuations: How They Should Be Carried Out

Justice Seppi in the case of Mundronja v Mundronja made a very reasoned decision as to Business Valuations of interlocking companies owned by the Husband, a wealthy entrepreneur in order to arrive at a division of Net Family Property (NFP).

A valuation and report should entail the following:

  • a well-reasoned analysis, subject only to a few modifications at trial,
  • due diligence on all aspects of the examination must be followed, including a careful review of any unsupported representations as to expenses etc.,
  • the core valuation methodology must be sound and accorded with accepted valuation principles,
  • the valuator must have had no prior dealings with the person at issue or the corporations,
  • the valuator must attend at the offices of the corporations and interview the person at issue regarding past and future operations,
  • the valuator must receive and review interim statements that he feels are reliable,
  • undertake an independent and comprehensive examination of the company's general ledger or other on-site sources,
  • the valuator’s evidence at trial must rely upon substantive detail with supporting documentation ie. receipts in order to be reliable,
  • normalization calculations must be made to adjust for non-recurring and discretionary items including amortization for equipment, management salaries of non-present staff and personal expenses the company pays for management,
  • inquiry into future earnings, projections and forecasts beyond the numbers that are provided. 

The above general statements should be reviewed with the Business Valuator you interview over and above the Valuator’s degrees and designations. The Valuator’s position on subscribing to these statements can assist in early settlement of your case and failing that having your Valuator’s evidence accepted by the court over that of the other side’s Valuator. 

April 2015