At some point, every business owner is likely to need a good business valuation, and that nearly always means working with an expert witness. There are different methods for business valuation, but they’re all quite technical. Also, the witness lends credibility to the valuation as few people would trust the owner’s own estimate of his or her business’s worth.
This makes it important to work with an expert who will give a good and fair valuation of the business, but that’s not always the case. For different reasons, experts might inflate or deflate the company’s worth. What happens when they do?
Six reasons it’s important to get a good business valuation
As a business owner, you work hard to grow your company and have a deep attachment to it. However, this attachment almost always causes owners to believe their companies are worth than the market can bear. If fact, as Forbes wrote in 2018, a study of 107 corporate attorneys found that every single one of them had worked with owners who felt their businesses were worth more than they were.
While aspiration is admirable, a business valuation rooted in pride may lead to bad decisions—as could one rooted in bad witness testimony. As Inc.com suggests, there are too many decisions that hinge on a solid understanding of your company’s worth to let a bad valuation stand. These include:
- Managing company assets
- Attracting potential investors
- Mergers and acquisitions
- Resolving shareholder disputes
- Selling the business
- Planning for estate taxes
In the end, though, whatever valuation you receive, it isn’t a pure value. The valuation is a number derived by one of several methods. It should be driven by data and best practices, but it is possible for someone to create a bad estimate, even an expert witness.
Bad witness testimony can harm your business
It’s easy to imagine all the ways a bad valuation can cause problems for you, your company and the children who might someday stand to inherit it. Accordingly, if you find yourself facing a bad valuation, you may need to get a better one, and if an expert has offered the valuation to a court, you may want to mount a legal challenge.
How could you do this? There are several ways an experienced litigator might challenge the valuation, including:
- Challenge the methodology. There are multiple methods for valuing a business, and some are more appropriate in certain situations than others.
- Challenge the data. When experts plug bad data into a formula, they’re likely to get bad results. You may be able to prove an expert has used unreliable data or ignored contrary facts.
- Challenge the witness. You can counter with an expert witness of your own. You may still want to challenge the opposing witness’s valuation.
A fair valuation can position you for continued success
The important thing is to stop the court or the market from accepting a bad valuation as truth. The time you spend fighting for a good valuation is likely to help your business. As much as your life is connected to your business, the time you spend pushing for a fair valuation is also likely to improve your personal circumstances.