How a Business Valuation Disputes Attorney Can Help You

A business valuation disputes attorney can help shareholders in a variety of situations:

Minority shareholders who feel they are being oppressed by the majority shareholders and would like a buyout of their shares or to force a dissolution of the company
Majority shareholders who would like to minimize the buyout value of the minority shareholders
Shareholders who disagree over company valuation in mergers and acquisitions

If you are looking for a business valuation dispute attorney, we at the Law Offices of Albert Goodwin are here for you. You can call us at 212-233-1233 or send us an email at [email protected].

Disputes over small business valuation

A business valuation disputes attorney will, with the assistance of other professionals, help you determine the value of your business. They will request the following documentation to aid them in valuation:

licenses
deeds, and other proprietary documents
profit and loss statements for the past 3 years
tax filings and returns
a short overview of the business and personal finances

Disputes regarding which business valuation method to use

A valuation disputes attorney will usually recommend one or more of the three types of business valuation methods:

income-based approach
asset-driven approach
market approach

Income-based approach

Under income-based valuation, the discounted cash flow method is used by calculating the present value of the business’s future cash flow using EBITDA or free cash flow as a basis.

Asset-driven approach

With the asset-driven approach, the liabilities are deducted from the value of the physical and intangible assets of the business, such as the equipment, property, inventory, to arrive at the business value.

Market approach

The market approach, on the other hand, uses purchases and sales of comparable companies in the same industry.

Not one method is correct, and a combination is often used in a valuation. The most weighed valuation method may depend on the industry and type of business the company is in. The different valuation methods will yield different business values for the company, the way valuations are used may depend on what side of the valuation argument you are on.

If you are a minority shareholder who would like to sell your shares, you will opt for the highest valuation you can receive. If you are a majority shareholder buying out a minority’s share, you would choose a lower business valuation. A business valuation disputes attorney can provide you with options to help strengthen your position.

Disputes regarding earnings and multiples in business valuation

Most large businesses use EBITDA (earnings before interest, tax, depreciation, and amortization) plus a multiple to value their business.

Smaller businesses use the Seller’s Discretionary Earnings (SDE) as a substitute for EBITDA to get a more accurate business valuation.

Basically, SDE is EBITDA plus the owner’s salary and benefits.

For example, if the business has an EBITDA of $200,000 a year and the owner pays himself a salary of $120,000 per year, charges personal travel to the business worth $5000 per year, and charges the owner’s personal car loan to the business worth $2500 per year, all these expenses are added back to the EBITDA to arrive at the true valuation of the small business. This SDE then is multiplied by a multiple which can range from two to ten, based on the presumed longevity of the business.

The logic behind using multiples is an assumption that the business will run, not just for one year, but several years after acquisition.

Generally, large businesses that have been around for decades can command a higher multiple. For small businesses, the multiple range is from two to ten, based on comparable multiples of other companies in the same industry, the risks involved, and the size of the business.

Valuation disputes in mergers and acquisitions (M&A)

Valuation disputes often occur when shareholders would like to sell their shares or in mergers and acquisitions (M&A). In large M&A transactions with multiple shareholders where the value of the business is more than $20 million, the board of directors would usually utilize the services of a financial adviser to provide a valuation or fairness opinion on the value of the shares.

This valuation or fairness opinion would protect the board of directors from liability under the business judgment rule, in case the proposed sale price of the shares is litigated and deemed to be below market value.

In smaller M&A transactions where there is only one shareholder or in instances where a shareholder would like to sell his shares under the other shareholders’ right of first refusal, a valuation disputes attorney can help you arrive at a proper valuation of your business.

If you have issues regarding business valuation, a valuation disputes attorney will be able to help you. We at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].