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Home > News > Valuing your business for divorce during a time of economic uncertainty

Valuing your business for divorce during a time of economic uncertainty

05 February 2021 |

 

Many of the clients we advise at GL Law have an interest in business assets, whether it be as a minority shareholder in a larger company, or as the sole or controlling shareholder in a family company. Placing a value on your business is often a crucial part of the disclosure and fact-finding process that takes place before negotiations about the division of family assets. 

Agreeing on a value for business assets is often a sticking point in the divorce process, and this has become even more difficult in the current climate of economic uncertainty resulting from the pandemic. When a value cannot be agreed it is often necessary for the parties to jointly instruct a specialist (forensic) accountant to prepare a formal valuation.  The valuer will try to ascertain what the business would sell for if it were marketed for sale. In most cases this is entirely hypothetical as the business has never been on the market, and there is no intention to sell.

The short and long-term financial impact of both COVID-19 and Brexit are still unclear and varies across the sectors. This has naturally led to an increased uncertainty and more difficulties in valuation. This has, in turn, sometimes made it harder to negotiate financial settlements.

Overall, most smaller businesses have suffered a decrease in value during the pandemic, although strong companies that were trading well before COVID-19 struck have been more resilient. This has been helped by government rescue packages of grants, loans,funding, and furlough. 

Some sectors have fared better than others notably those selling garden furniture, DIY products, caravans, mobile homes and those with a strong online presence. The hospitality and events sectors have been hit hard, especially those with continuing overheads such as wedding venues.

Even those companies that have done well have suffered from issues with supply chain disruption, which will affect the sustainability of economic growth going forwards.

The starting point will be for the valuer to look at how the company was trading before the pandemic and assume a return to this in the future, albeit that they will need to factor in the element of risk. This will be industry specific and a good forensic accountant will have contacts in various industries who can provide insight into the unique challenges faced by each sector.

The valuation will also consider any debt the company has accumulated during the pandemic, and its ability to service this debt once it can trade normally again.

The valuer will also look at the liquidity of the company’s assets to determine what lump sum, if any, could be drawn out to facilitate a settlement without damaging the company.

For the valuer to be certain on how the company has been impacted by current economic conditions they will want as much information as possible, including management accounts, details of company assets, a cash flow forecast, business plans and historic accounts. This will help them build up a good picture of the individual challenges experienced by the company and how this should be reflected in a growth forecast and valuation. Where the company has applied for COVID-19 loan support, these documents should be readily available.

If you are concerned about how your business assets will be dealt with in a divorce or separation you should take specialist advise as soon as possible.

To contact our team of specialist divorce lawyers in Bristol or London, please call 0117 906 9400 for a free discovery call or email hello@gl.law.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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