You might think that your business will never be the one that breaks down over a shareholder dispute.
However, it is a major cause of business failure, particularly for small-to-medium-sized companies and partnerships.
Even the strongest relationships can come under strain when circumstances change or challenges arise.
When you’re trying to separate emotion and fact during these disputes, a business valuation can be invaluable.
Luke Morgan, our Director and Manager of our Commercial Litigation and Dispute Resolution department, explains more.
What is a business valuation?
A business valuation determines what your company is worth. It delves into the overall health and position of your business to reach a fair, realistic value.
A valuation will consider your:
- Financial performance
- Assets
- Liabilities
- Cash flow
- Future earning potential
- Intellectual property
- Brand value
A professional will take all this into account and produce an objective figure that all parties can rely on.
When is a valuation needed?
Valuations are often needed when a shareholder wishes to exit the business and a fair price needs to be agreed upon.
They are equally important when there are disagreements over dividends or situations where a partner is being removed or replaced.
It might be that your company itself is changing, such as restructuring or preparing for a sale, so you need to have an understanding of the company’s value.
Methods of business valuation
Valuations are tailored to your company and the nature of your dispute, so there is no single method for everyone.
However, there are three main approaches.
Income-based
This approach values the business based on its expected future cash flow, which is discounted back to its present-day value.
It works particularly well where income is stable and considers the returns a buyer or investor might expect.
Market-based
This method determines value by comparing the business to similar companies that have recently been sold, using metrics like EBITDA or revenue multiples.
It can be very effective for valuing controlling interests, although it may be harder to apply where there is limited market data to compare it to.
Asset-based
This approach calculates value by assessing the market value of a company’s assets and subtracting its liabilities.
It is often suited to asset-rich or distressed businesses, but may not fully reflect value such as goodwill or intellectual property.
How does a valuation help in disputes?
It is likely in shareholder disputes that one party will wish to exit or for their investment to be met with compensation.
It’s hard to come to a figure you can both agree on, as naturally, you will skew the valuation in your favour.
A professional valuation introduces an independent, evidence-based perspective and helps remove personal bias.
This fair assessment also helps keep negotiations constructive and prevent disputes from escalating further.
If your dispute progresses to more formal court proceedings, this is a good basis to have and you can be sure any points are backed by a credible financial analysis.
How can we support your valuation?
Going through a shareholder dispute is difficult enough without having to worry about the value of your business.
Our team can review your shareholder agreements to identify any agreed valuation methods and guide you through the valuation process to ensure the outcome is fair.
We can also support any negotiations between shareholders and work towards resolving disputes through a settlement or mediation, where possible.
Let us help protect your financial interests and the future of your business.
Get in touch for further advice or support for your shareholder dispute.
