Welcome to the first edition of our Shadow Expert e-bulletin for the 2018 year. We trust everyone is busy following the increase in matrimonial matters that typically signal the start of a new year.
We are working with an increasing number of Brisbane family lawyers, involving complex and often high value property settlements, and would like to share some of our thoughts and experiences with you. In this e-bulletin we focus on business valuations, a contentious area in most property settlements.
Movies like the Titanic, are a constant reminder to us that only about 10 percent of an iceberg is visible above the water, while 90 percent lies below the surface and is out of sight. However, it is the 90 percent that determines the iceberg’s behaviour at the tip.
A business is like an iceberg – the deep layers that influence value are hidden from our view.
In any business valuation, it is necessary to look beyond the financial statements. While historical trading results are relevant, and are used to form an opinion of likely future profits, they only represent 10 percent of the business that is visible, and do not identify the underlying drivers of the business that may create and/or destroy value.
There are many drivers of value, and they will vary among businesses. What is required is a thorough and deep analysis to identify the critical value drivers and their likely impact on future profits. Some common drivers include.
- Quality and spread of customers/competitors
- External factors (political, economic, social, technological)
- Experience and knowledge of key employees
- Product/service life cycles (level of innovation)
- Intellectual property (trade secrets, patents, copyrights)
Every valuation should consider both the financial (the 10 percent) and the qualitative (the 90 percent non-visible) factors. Failure to do so, could result in the same plight as the infamous Titanic.
If you need a business valuation, help to interpret an expert’s report, or any assistance with the property pool (including the taxation issues) please feel free to contact John or David on 3221 4465 or email john@dbsy.com.au or david@dbsy.com.au on an anonymous and no obligation basis.
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