David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.
When a forensic accountant performs a business valuation, one of the first – and most important – factors that must be determined is the date of the valuation. There are many different bases that can be used to fix this key factor. Here are a few:
- For a marital dissolution, the valuation date can be the date of marriage (for determining the pre-marital business value) and/or date of separation or date of filing of divorce complaint (for determining marital business value), and/or a current date (for determining ability to pay);
- For financial statement presentation purposes, the valuation date can be the date of acquisition (for purchase price allocation) or the end of the financial statement year (for determining goodwill impairment or purchase price impairment);
- For gift taxes, the valuation date can be the date of the gift;
- For estate taxes, the valuation date can be the date of death or the date six months after the date of death;
- For insurance claims and damages litigation, the valuation date can be the date of the incident that gave rise to the claim occurred (for determining valuation of total loss value) and/or the date the impact of the damaging incident ceased (for determining period of loss and lost value during that period);
- For business acquisitions, sales and/or mergers, it can be any mutually agreed-upon date.
The selection of the valuation date is critical because, among other things, a business valuator can only consider factors that were known or knowable as of the valuation date. This means that certain key subsequent events may or may not be considered in valuing the business. The following illustrate how this impacts the business value:
- In the case of Hurricane Sandy which hit New Jersey and New York on October 29, 2012, the selection of a valuation date could have a major impact. For example, if the valuation date of a business affected by Hurricane Sandy was October 29, 2012 or later, then the effects of the hurricane would be considered in valuing a business which was destroyed by Hurricane Sandy. But what if the valuation date was a few days earlier? If the valuation date was October 28, 2012, it is reasonable to expect that the business would have been affected by Hurricane Sandy only 24 hours later. But what if the valuation date was October 23, 2012, when all but one of the storm models predicted that the storm would head out to sea? Or October 24, 2012, when three of the storm models predicted that the storm would hit the East Coast around the Delaware-Maryland-Virginia peninsula and the rest predicted that the storm would head out to sea? This determination would be critical if the business had been destroyed by Hurricane Sandy.
- In a divorce, if the spouse’s business was declining, static, or growing slowly as of the valuation date, but three months later landed a large lucrative contract, should the impact of that contract be included in the valuation? In this case, several factors would determine whether it was known or knowable as of the valuation date that the contract would be awarded. For example, if the contract was awarded based on a Request for Proposal that was sent out by the customer ten days after the valuation date and this was the first time that the spouse’s business had ever submitted a bid to this customer, it would tend to point to the award not having been known or knowable as of the valuation date. Alternatively, if the Request for Proposal and proposal had been submitted several months before the valuation date, if the spouse’s business had been selected as one of two finalists before the valuation date, and if the spouse’s business had previously won one or more contracts from this customer, it could be reasonable to assume that as of the valuation date it was known or knowable that the spouse’s business was likely to win the contract.
These are just examples, of course. The forensic accounting professional acting as the business valuator in such situations must consider all the specific facts surrounding the valuation date to determine whether a critical post-valuation date event was known or knowable as of the valuation date.
If you need a business valuation professional in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at email@example.com.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting, and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.