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As previously discussed in my article on ‘Business Valuation vs Entity Valuation’, the value of the business and the value of the corporate structure that the business operates from can be vastly different.
When formulating your instructions to the expert, it is important to establish whether you want a valuation of the business or whether you require a valuation of the corporate structure, which may contain other assets and liabilities not used by the business and hence outside the scope of a valuation of the business.
‘ABC Lawyers would like to instruct you as the Expert to provide your opinion as to the value of the plumbing business trading as JJ Plumbing.’
‘ABC Lawyers would like to instruct you as the Expert to provide your opinion as to the value of the Jones Family Trust. The Jones Family Trust operates a plumbing business trading as JJ Plumbing.’
In Scenario A, the expert is clearly being requested to value the business only, which would result in the exclusion from their opinion of assets or liabilities they considered to be surplus to the business’ requirements, namely surplus cash, external debt or loans to/from the Parties.
Alternatively, Scenario B clearly states that the expert is to form their opinion as to the value of the Jones Family Trust which includes the plumbing business and all other assets or liabilities owned by the family trust.
Both valuations serve their purpose and are dependent on the facts of the matter. Thus, it is important to be sure about exactly what you seek from your accounting expert as improper instructions could cause angst when the expert report is received.
