If a business valuation is needed, it will usually be undertaken by a single joint expert acting on behalf of both parties in a divorce case. However, before instructing an expert, certain steps should be taken.
There should be consideration of full business accounts for the last two financial years, which applies to sole traders as much as it does to partnerships, LLP’s, or shareholders in limited companies.
If a business is incorporated, abbreviated accounts can often be accessed online from Companies House. This contains easily accessible information that either party can review digitally at the touch of a button.
Whilst a useful overview, these are no replacement for full company accounts, which are usually much more informative and should include the full profit and loss account, balance sheet, detailed notes to the accounts, and reports on behalf of the accountants and directors.
This information gives more context to the performance of a business than publicly accessible abbreviated accounts. Unsurprisingly, abbreviated accounts tend to be more concise and might only tell part of the story.
A word of caution, it is worth bearing in mind that by the time business accounts or financial statements are available, the data may be historic and could be out of date. It is worth cross-checking this information against more current management accounts. This can help give both parties more confidence in a valuation and make more informed decisions without instructing an expert.
Additionally, it may be wise to obtain a letter from your accountant to comment upon its value, which can assist in narrowing the issues in dispute.
This can help, although the flip side is that the spouse may be wary about relying on a company accountant’s valuation unless there is corroborating evidence from a single joint expert. However, it can help to explain how the valuation of the client’s interest in the business has been assessed.