The Litigation Valuation Process
Legal disputes can be difficult, stressful, and costly if you own a business. During litigation, businesses may suffer reputational damage, legal repercussions, and financial loss. A business valuation for litigation can help you navigate the uncertainties of legal disputes. Understanding the fair market value of your business can help you prepare for the effects of litigation. Even if your legal dispute doesn’t go to trial, you can use a professional valuation during settlement negotiations.
Peak Business Valuation, business appraiser, can provide you with an expert litigation valuation. A litigation business valuation from Peak can help you understand the fair market value, the risks, and the value drivers associated with your business. Peak can also help you understand the litigation valuation process and how to value a business for litigation support. Schedule a free consultation to get started today!
The Importance of a Litigation Business Valuation
There are many different types of litigation a business may experience. Whether you are experiencing an insurance claim, divorce, partnership dispute, or something else, a litigation valuation can help. A litigation valuation identifies risks and key value drivers in your business, allowing you to prepare for those factors. It will also be useful in litigation negotiations or court proceedings. Check out Litigation Valuation for a Legal Dispute and Reasons to Obtain a Business Valuation for Litigation Support to learn more.
The Litigation Valuation Process
Many law firms estimate that litigation threatens up to 50% of small businesses every year. Whether you are currently involved in litigation or simply preparing for the future, understanding how to value a business for litigation is important. Valuing a business for litigation can be different than a typical valuation. Understanding the subtle differences can help you know how litigation may impact your business. In this article, we discuss the litigation valuation process and the different components involved.
Documents Needed for a Litigation Valuation
The first step in a business valuation for litigation is collecting the needed documents and information. During the litigation valuation process, business appraisers use company financial statements to guide their valuation. They will also conduct market research and compare the business’s financial health to others in the industry. Evaluating all internal and external factors is essential to an accurate business valuation.
Valuing a Business for Litigation
After gathering the needed information, business appraisers use valuation methods to determine the fair market value of a business. Business appraisers use a combination of valuation methods to complete the valuation. This allows the valuation to be specific to the industry, needs, and financial standing of a business. The most common valuation methods are the income, market, and asset approaches.
The Income Approach:
The income approach values a business by analyzing its future income potential. This approach can account for risks that may threaten the future income of a business. Several aspects of the income approach change the overall valuation. You can learn more by reading The Income Approach Made Simple.
The Market Approach:
The market approach values a business in comparison to similar businesses recently sold. This approach is similar to a real estate valuation. Business appraisers use valuation multiples to compare the financial performance of a business to its competitors. Check out The Market Approach Made Simple for more on this approach.
The Asset Approach:
The asset approach values a business according to the value of its assets. Business appraisers value the company’s assets and use them to determine value. The asset approach is less common than the previous approaches but can be helpful in some situations. See The Asset Approach Made Simple to learn more.
Working with a professional business appraiser is essential when obtaining a litigation valuation. Using the right combination of valuation techniques is critical to determining the fair market value of a business. Peak Business Valuation can provide you with an expert business valuation for litigation. We work with hundreds of businesses every year and are ready to help you. Schedule your free consultation with Peak today to connect with our team of professionals.
Adjustments and Discounts
During a business valuation for litigation, business appraisers make needed adjustments and apply certain discounts to the valuation. This step includes analyzing financial documents and accounting practices to find possible inconsistencies. They will also apply discounts such as lack of marketability or key man discounts depending on the impact of the legal dispute. Check out Key Elements of Litigation Business Valuation and Common Valuation Adjustments to learn more.
The Litigation Valuation Report
As part of a business valuation for litigation, you will receive a valuation report. The valuation report is a summary of the fair market value of a business. It will also include an explanation of the valuation methods, adjustments, and discounts considered during the valuation. The valuation report is a key element of the litigation valuation process. You can use the valuation report to maximize the value of your business in all forms of litigation. Additionally, it will prove essential in litigation negotiations or during trial.
Expert Witness Services
In some legal disputes, judges may require expert witness testimony to consider a business valuation in court. Most judges are not familiar with accounting or business appraisal practices and therefore require a valuation expert to explain the valuation. In these cases, it is important to work with a business appraiser with the qualifications to be an expert witness. Peak Business Valuation has a team of business appraisers who can serve as expert witnesses. Check out Expert Witness for a Litigation Support Valuation and reach out to Peak today to know more about expert witness support for litigation.
Conclusion
Legal disputes can be extremely costly and cause headaches for business owners. They can even decrease the future value of a business in some cases. Using a business valuation for litigation can help you minimize these side effects and maximize the value of your business. Understanding the litigation valuation process will also help you understand the elements that contribute to and change the fair market value of your business.
Peak Business Valuation, business appraiser, is happy to provide you with a business valuation for litigation. We can also explain the litigation valuation process and help you maximize the value of your business. Using a litigation valuation from Peak can help you achieve the desired outcome from your legal dispute. Peak also has a team of valuation experts who can serve as expert witnesses during litigation proceedings. Reach out and schedule your free consultation with Peak below!
