Our family lawyers have been fielding calls and emails from clients new and existing asking questions about parenting and property issues that have arisen, or how the current circumstances with the coronavirus will have effected them. One particularly significant issue is that of business values.
Valuations from 2019 will clearly not take into account the current economic situation. But not every business or enterprise valuation is made equal. There are a variety of ways to value a business or enterprise – you can approach this as a business value (that is, the assets minus the liabilities) or as an equity value (the value of what you might sell the business for, including good will). Equity value is a bit like the net equity in your house, which takes the sale value, takes out any debt, and removes any non-fixed chattels like the furniture.
Even then, there are multiple ways to conduct an equity value. One popular way is the ‘future maintainable earnings’ method, but that could have some problems in an environment where your current earnings are severely impacted, your cash flow is impeded, and a multiple of that amount may not be representative of the true value of a business.
It is important if you are looking for an accurate, up to date valuation, that your valuer and lawyers take this into account and more. For example, does your value incorporate the cash-flow effect of government support measures such as the JobKeeper payments? A detailed investigation of the sector in which your business operates, supply chain issues, and government intervention is required. It may also be appropriate to look at the longer term position, and focus on the recovery. Valuers also need to be careful not to count impacts twice – if for example, your earnings factor in the effect of COVID-19, then it may not be appropriate to reduce the multiple of that earnings that is part of the calculus of a business valuation.
This is a lot of detail, and just scratches the surface of issues to consider. It is vital in this time that you have a lawyer, and a valuer, who is across this kind of issue. If your partner does not have this knowledge on their team, they may be left at a significant disadvantage to you. Call our team of experienced lawyers on 03 9614 7111 to speak with us now about how we can help in these tumultuous times.