Key Elements of Litigation Business Valuation
If your business is in litigation, obtaining a business valuation for litigation is critical to your success. With a professional business valuation, you can understand the opportunities of your business and how to increase its value. You can also use it to make strategic decisions in your legal dispute. In this article, we will discuss the key elements of a litigation business valuation and why they are important.
Peak Business Valuation, business appraiser, values businesses for litigation every year. Peak has the experience and certifications necessary to guide you through the valuation process. We are also qualified to serve as expert witnesses in litigation proceedings. Reach out today and schedule a free consultation to get started on a litigation business valuation.
What is a Litigation Business Valuation
Before we discuss the key elements of a litigation valuation, it is important to understand what a litigation business valuation is. A business valuation for litigation is an analysis of the fair market value of a business. A litigation business valuation will also asses the potential opportunities and risks of a business. Professional business appraisers use the business’s financial documents to complete their valuation. See Using a Litigation Valuation to Strengthen Your Legal Case to learn more.
Key Elements
There are many different aspects that valuation professionals must consider when valuing a business for litigation. Legal disputes can have many adverse effects on a business. Understanding the key elements of litigation business valuation can help you better understand the effects it will have on your business. We discuss some of the key elements of a litigation business valuation below.
Financial Analysis
One of the most important aspects of a litigation valuation is analyzing a business’s financial standing. During a business valuation, business appraisers thoroughly analyze the business’s financial history. This includes assessing cash flows, revenue, and profitability in past performance and future projections. They will also analyze the litigation’s impact on these metrics and adjust the valuation accordingly.
Normalization and Adjustment
During a business valuation for litigation, business appraisers will make valuation adjustments and normalize financial statements. This process identifies irregularities or anomalies in the financial records or accounting practices. Normalization also accounts for any discretionary or non-recurring expenses or incomes that may not affect the long-term value of the business. Normalizing and adjusting the financial statements better assesses the true value of a business. Read Common Valuation Adjustments for more information.
Intangible Assets
A business valuation typically accounts for a business’s assets as part of the overall valuation. Some of the most valuable assets a business has are intangible assets, such as brand recognition or goodwill. Litigation can have adverse effects on a business’s intangible assets. During a litigation business valuation, valuation professionals analyze the impact that litigation has on the value of intangible assets.
Legal Concerns
Not all legal disputes are equal or have the same long-term effects. A business valuation for litigation looks at the nature of the litigation and how it will affect the business. It also analyzes the potential liabilities that can come from different outcomes of the legal action. Sometimes litigation may have minimal effects while others may demand the division or dissolution of a business. Understanding the severity of the legal claims is a key part of a litigation business valuation.
Valuation Method Selection
Each business is unique. As such, each business appraisal must account for the differences. Because of this, business appraisers use a combination of valuation techniques when valuing a business. The most common are the income, market, and asset approaches. The income approach values a business according to its future earning potential and the risks of meeting it. The market approach uses valuation multiples to compare a business to similar competitors in the industry. Whereas, the asset approach looks at the business’s tangible and intangible assets. To learn more about valuation methods, read Common Business Valuation Approaches.
Peak Business Valuation has experience valuing all types of businesses. We can help you understand the value of your business and the effects that litigation will have on your business. Peak has a team of experts who have experience using various valuation methods to accurately value a business for litigation. Schedule a free consultation with Peak to learn more about the key elements of litigation business valuation.
Litigation Valuation Report
As part of a business valuation for litigation, you will receive a comprehensive valuation report. This report is a summary of the strengths, weaknesses, opportunities, risks, and market value of a business. A litigation valuation report includes an analysis of the key elements of a litigation business valuation. The valuation report will help you make strategic decisions for your business during litigation. To learn more, check out Business Valuation Report Made Simple.
Conclusion
Legal disputes can be complex and stressful for a business and business owner. It can also affect the value of a business in unexpected ways. Understanding the key elements of litigation business valuation can help you better understand the value of your business. It can also help you make decisions to minimize the negative impact litigation may have on your business.
Peak Business Valuation is happy to provide you with a litigation valuation. We can also help you understand the key elements of litigation business valuation. Working with valuation experts at Peak will help you through the litigation process and understand the value of your business. If you have questions or would like to get started, schedule a free consultation with Peak below!
