USING VALUATION SOFTWARE TO RESOLVE LITIGATION

By Darrell Dorrell

At the heart of many business conflicts is the question of valuation: What is a given business worth? The question can arise in a number of situations that are inherently adversarial, such as a disagreement that leads to a partner's departure, or a sale of all or part of a business. Valuation software can be used to avoid bringing a valuation dilemma to court.

A typical case involved the partners of a $10 million manufacturing firm. One of the partners wanted to be bought out, the two parties could not agree on a price, and a dissenting shareholders suit followed. I was asked to help resolve the dispute. I suggested that I be engaged jointly as a nonbinding mediator, and the principals and their attorneys agreed. This was an important first step, for it created a safe, nonthreatening environment where the parties could work together.

The next step was to gather the necessary data about the business and prepare a preliminary report. I used ValuSource PRO from Wiley-ValuSource to generate a draft notebook, which I sent to both principals and their attorneys. It is significant that I used commercial software and not my own spreadsheets or other "homemade" tools. It emphasized that I was applying widely accepted industry standards and working toward an objective value that would be deemed fair by the business community.

I opened the case file using the commercial software, walked the parties through the valuation, and took notes on their questions and concerns. We worked together to determine realistic and objective numbers for each item, and I showed the parties how each decision affected the calculated value. We arrived at a conclusion that everyone could accept.

Because of their close involvement in the valuation process, there was considerable buy-in to the numbers in the final document. Within a week the parties settled out of court for a number that was very close to the final value we had calculated together.

I can't stress enough the importance of educating the principals and their attorneys on the process and theory of business valuation. Valuation can be very abstract and difficult to understand, but seeing the process in action helps turn complex concepts into actual numbers. *

Darrell Dorrell, CMA, CMC, CEA, CVA, CPA, practices in Portland, Ore., and specializes in litigation support, business valuation, and assisting troubled businesses.

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