As an owner of a business, disputes and legal proceedings can happen. If a shareholder wants to exit the business, or sell its shares to another shareholder, determining as accurate and all-encompassing a business valuation is imperative.
This is where a business valuation expert witness comes in. These specialists are on hand to provide independent assessments of the fair market value of a company, while ensuring that their judgement remains unbiased and unclouded throughout.
In this blog, we discuss what a business valuation expert witness is, as well as just why you need one, and why a forensic accountant makes the ideal specialist for your case.
What is an Expert Witness in Business Valuation?
When it comes to business valuation, whilst an expert witness’ duty is to the Court, they will argue their client’s case. This is to add more weight to the client’s argument as well as take key questions under cross-examination. The expert witness will usually be a financial specialist with experience and knowledge in their field, such as a forensic accountant.
The overarching role of a business valuation expert witness is to act with objectivity throughout so as to not compromise their findings and conclusions, and so their judgements are not clouded.
How Does it Work?
A business valuation expert witness will carry out their investigation according to a strict and meticulous process. This is to ensure all the facts are taken into account and a strong case can be built.
The process works as follows:
Step One: Gathering Data
The expert witness will collect any and all relevant financial documents and business records. This process is done to collate all the information that could be necessary in order to assess the business’s market value.
This can include:
- Financial statements
- Company tax returns
- Market data
- Relevant industry information
The expertise of a forensic accountant acting as expert witness at this stage can prove invaluable. Forensic accountants are trained to be meticulous in their approach, with no stone left unturned. When it comes to gathering all the relevant data, you will want somebody who you can be confident in to not miss a single important document or statement.
Step Two: Analysis
Once all information has been gathered, the expert witness will perform a thorough analysis of everything collected. When it comes to conducting the actual business valuation, there are a number of different methods commonly employed, including but not limited to:
- Income Approach: The company’s current value directly correlates to how positive its cash flow is and has been over a number of years.
- Market Approach: Determining the value of the business using the selling price of similarly sized companies within the same field.
- Asset Valuation: Utilise the current fair market value of a firm’s assets and liabilities to come up with a current value
- Future Earnings Method: A business’s value lies in its ability to consistently produce revenue in the future.
Step Three: Reporting
Following on from this analysis work, the business valuation expert witness will assess the value of the share capital and prepare a detailed and thorough expert report, which is compliant with the Court Procedure Rules.
This reporting should outline their overall findings, as well as their conclusions and deductions based on them.
Step Four: Expert Evidence
If the valuation comes as part of ongoing legal proceedings, the business valuation expert witness could find themselves called to give evidence in court. This is done so they can present and explain their findings, as well as answer any relevant questions.
At this stage, the business valuation expert witness may also find themselves being cross-examined by the opposing party’s legal representatives. Your valuation expert will likely need to defend their findings and conclusions.
Why Do I Need a Business Valuation Expert Witness?
Expert witness business valuations are often required during litigation in cases surrounding commercial and shareholder disputes, divorce, etc. You will need a business valuation expert witness to provide an objective and reliable overview of the value of your company, which in turn can help you, the court, or other parties involved in your situation make more informed decisions, and assist with any settlement discussions.
You are likely to need a business valuation expert witness for a number of reasons, particularly during legal proceedings. Some of the primary reasons for needing one would include:
- To Gain an Objective Assessment: The more experienced the business valuation specialist, the more credible and objective their assessment will be. This allows all parties the ability to plan for the future with total clarity.
- Cut Through the Complexity: A business valuation can be a highly complicated process. A highly skilled expert witness will be able to come up with solutions for these complexities in order to come up with a final valuation you can trust.
- Help With Litigation: An expert witness will be able to provide a perspective that can stand up to any scrutiny in court and help bring your litigation to as stress-free conclusion as possible.
- Resolve Your Dispute: Sometimes, be it in business or in life, disputes can be unavoidable. An expert witness will provide impartial valuation support to help resolve disputes as amicably as possible.
- Industry Specific Support: A business valuation specialist will have the expertise and experience to adjust their methods to your specific industry.
- Boost Credibility: Having a business valuation expert witness on hand can hugely bolster the credibility of the valuation.
- Assist in Mediation: Having a professional on hand with experience in mediation and negotiating settlements can be vital to help reach a fair compromise.
- Cut the Mistakes: As mentioned above, the business valuation process can be highly complex. A professional expert witness will be much less likely to make any errors in the process.
Having a business valuation expert witness on hand will significantly strengthen your case, as make the valuation itself both more accurate and more credible. This can put you in an excellent position moving forwards.
Forensic Accountants: Ideal Business Valuation Expert Witnesses for Your Case
If you’re involved in a legal matter or dispute involving valuation, a business valuation expert witness can be pivotal.
The meticulous and detail-oriented approach they promise to bring to the process of gathering and analysing data, and their ability to present their findings in court to a standard that can withstand scrutiny is vital.
Your skilled business valuation expert witness specialist will be on hand to help you make more informed business and personal decisions, ensure the fairest resolution possible, and present as strong a case as you possibly can.
An experienced forensic accountant stands as an ideal candidate for a business valuation expert witness for a number of reasons. The team at Inquesta Forensic possess unique, specialist knowledge and training when it comes to investigating financial materials and analysing highly complex financial data.
As business valuation expert witnesses, our specialists guarantee unbiased, objective opinions. We let the numbers do all the talking for us.
With years of experience assisting businesses in a wide array of fields and with an assortment of legal issues and highly complex issues, we have a deep rooted understanding of the business valuation process.
As a result of all of the above, a forensic accountant acting as business valuation expert witness on your case can hugely strengthen your position. For more information about how Inquesta Forensic can help your case, contact us today.