A guide for solicitors wishing to instruct aforensic accountant to undertake a businessvaluation as part of Financial Remedies www.hwforensic.com
VALUATIONPROCESS LETTER OF INSTRUCTION Is your expert accountant conflicted with the proposed Ask your expert to confirm that there is no conflict with theengagement? business or its owners. This should be explained in a covering letter. For example is itWhat is the purpose of your valuation? for use in a collaborative or a conventional process, to inform an FDR or for use by Court. For some industries such as nursing homes, shops or publicIs the business in a specialised industry? houses, there are specialist valuers or means of valuation.Should the valuation also include subsidiaries and Advise your expert accordingly.associated businesses?Have identity checks been carried out for compliance with Confirm that you have seen client’s identification, and compliedmoney laundering regulations? with money laundering regulations. Make dates clear to the expert and provide a copy of the Order. State whether you, your client or your client’s accountant willTimetable. provide information, and whether the expert has authority to obtain information directly from the incumbent accountant.Is there a need for the expert to visit the business or have Ask the expert to consider and provide a quote for undertakinga discussion with the parties in order to gain a better this work. Ask how the expert will maintain balance and evenunderstanding of the business and its background? handedness.Confirm costs previously agreed or get an updated estimate in Seek to confirm or update costs and the basis of charging.light of actual instruction.Are there any existing valuations of the business (IHT or Supply these to the expert if they may be relevant. Provideprevious transactions)? Are they relevant? Can costs be saved by explanations where applicable.their use? Has the business been offered for sale?Are there any relevant constitutional or legal documents? Supply these to the expert and refer to the relevant section,e.g. shareholders’ agreement, correspondence, constitution, if necessary.partnership agreement, or commercial agreement.Does the divorce involve a spouse leaving the business? Explain what is expected to happen now in terms of staffingWhat are the parties’ respective roles? Are they full-time or arrangements and remuneration. What working assumptionspart-time? Do they receive remuneration? should the valuer make?Is a valuation required of the whole business, including goodwill Instruct the valuer accordingly. Ask the expert valuer to explain(goodwill = total value less net assets) or a valuation of a sources, basis of methodology, and the reasons for the choice ofspecific interest? methodology.Does the business have surplus assets i.e. those not required for Ask your valuer to pass comment, if relevant.the trade, such as surplus cash or surplus property? Either specifically direct the valuer, or ask the valuer to explainShould a discount for a minority shareholding be applied? the value of any minority interest, with and without discount.
TAX IMPLICATIONSPROCESS LETTER OF INSTRUCTION Will there be a need to consider CGT on the sale or transfer Instruct the expert to consider this if applicable.of a spouse’s interest? Additional information may be required in order to consider CGT.How would the sale actually be conducted, if pursued i.e. asset Provide guidance to the valuer, or ask the valuer to considersale or sale of company shares? What are the tax implications the issue.of each approach?What are the tax implications of taking a lump sum out of the Instruct the expert to consider if required, and the differentbusiness? ways in which this may be undertaken.Should the expert consider the impact of tax mitigation Instruct the expert to consider if applicable.schemes?OTHER SENSIBLE OPTIONSPROCESS LETTER OF INSTRUCTION Is there a need to consider the sustainable income (dividends, Instruct the expert as necessary. It may be helpful to providepay, benefits and drawings from a directors loan account) of the recent tax returns.business owner or shareholder?Is there a need to consider the liquidity of the business or ability Explain to the expert the purpose of fund raising, and seekof the business to raise funds? opinion about internal and external sources of finance.Is a sale or transfer being considered? Should there be a Instruct the expert to consider alternatives, particularly whereconsideration of other options e.g. spouse stays in business, a cash flow and liquidity may be an issue.deferred sale, or a business restructure.Is there a need for the expert to consider the directions of Send extract to the expert or provide synopsis of key issues.HHJ Charles in D v D and B Limited  2 FLR 653?
To the extent that it has not been already disclosed, TYPICAL INFORMATION it may be more efficient and cost effective for this REQUIREMENTS information to be sought directly from the business by the valuation expert.• The full annual accounts of the business for the last 3 years (including detailed profit and loss accounts)• Management accounts for the current accounting period to date (if these exist)• Copies of current budgets, forecasts, and business plans (if available)• The Memorandum and Articles of Association (if applicable)• Shareholders’, partners’ or members’ agreement• Information concerning the roles, duties and remuneration of the spouse and his or her co-directors / partners• Commercial information about the business (including its principal goods or services, markets, customers, suppliers, contracts, terms of business, etc.)• Information regarding any recent valuations of the business or offers to buy or sell3 Southernhay West 26 Kings Hill AvenueExeter Kings HillEX1 1JG West MallingDX 8317 Exeter 1 ME19 4AETel: 0845 603 7020 Tel: 01732 424017Fax: 01392 421475 Fax: 01732 424001www.hwforensic.com www.hwforensic.comHW Forensic Accountants is part of the HainesForensic Accountants is part of the Haines Watts Group HW Watts Group