Business valuation applied to commercial contract dispute litigation: methodology, deliverables, and case-specific considerations.
A contract breach can permanently impair a business or end it, and when it does the measure of loss shifts from lost profits over a period to the diminished value of the business itself. The economist values the business before and after the breach under a consistent standard and approach, isolates the change attributable to the conduct at issue from market conditions and other causes, and coordinates the valuation with any lost profits claim so the same loss is not counted twice. The report explains which measure applies to which period and why.
Valuation of closely held businesses and ownership interests for shareholder and partnership disputes, divorce, estate and gift matters, and buy-sell disagreements. The work applies the income, market, and asset approaches under the standard of value that governs the matter, addresses discounts for lack of control and marketability where they apply, and documents every input so the conclusion can be tested on cross-examination.
The claim typically consists of lost profits on the contract itself, measured as the revenue that would have been earned less the costs that would have been incurred to earn it; lost profits on related business that depended on the contract, where the record supports the connection; reliance costs incurred in preparation for performance; and in some matters the diminished value of the business when the breach reduced its ongoing earnings capacity. The drivers are the contract and its performance history, historical financial statements and tax returns, budgets and projections prepared before the dispute, customer and pricing records, and the cost structure that determines what portion of lost revenue would have been profit.
We issue the final report and provide deposition and trial testimony and critique of opposing valuation reports.
When the breach permanently impaired or ended the business. Lost profits measure earnings lost over a period while the business continues; lost business value measures the reduction in what the business is worth. The report uses one or the other, or both for different periods, and explains the choice.
From the financial statements, projections, and market conditions as they stood at the breach date, valued under the income, market, and asset approaches as the facts support. The after-breach value uses the same approaches with the effect of the conduct isolated from other causes.
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