Undisclosed Cash and Personal Expenditure
Better Evidence, Lower Costs:
Why a shadow adviser at the start can save a fortune at the finish
At FHM Forensic Accounting we are regularly instructed as Shadow Adviser in divorce cases to review either the initial Form E disclosure and/or the Single Joint Expert (“SJE”) report and assist with framing appropriate questions to the other side. In both areas a shadow expert can provide valuable input.
Early Engagement
However, in our experience there is a third area which is often overlooked yet is somewhere the shadow expert can provide valuable and critical input for business owners. This is at the point of instructing the SJE in the first place and, critically, to review and advise on how information is presented to the SJE and how any responses are handled.
As SJE we understand the significance of the information handed over and the responses to the questionnaire that will typically need to be provided as part of the process. Business owners know their business better than anyone but often do not fully appreciate the potential significance of the answers they give to the questions raised by the SJE.
Unfortunately, once the responses have been provided and are reflected in the SJE’s conclusions - and are evidenced in the report’s exhibits - it is difficult to address any revisions through clarification questions. Misleading impressions or misunderstandings can result in a valuation opinion that is based on assumptions that the business owner may, with hindsight, disagree with. All too often when discussing the SJE report we identify seemingly innocuous comments that have given a misleading impression. For example, business owners tend to be very positive individuals and may have an optimistic view of future trading performance which they are happy to share with the SJE. However, this rosy view may need tempering in the context of recent performance or the economic landscape.
Similarly, they may not understand the implications of calculations of EBITDA “Earnings Before Interest Tax Depreciation & Amortisation”, weightings and trend analysis on the final outcome. It can be extremely useful to explain any exceptional years or trends and possibly to provide balanced forecasts. In a recent case, identifying a year as exceptional adjusted the SJE’s valuation by £2 million.
Other Considerations
Other areas where early input from a shadow adviser can be cost effective include:
• The role and commercial salary of the business owner
• Working capital adjustments
• Review of recent internal share transactions
• Minority discounts
• Review of market multiples
Conclusion
Valuation is inherently subjective and, when assessing a valuable business, I recommend appointing your shadow adviser at the point you engage your SJE and use them to guide you through those initial stages.
It is certainly true that “early expert input will preserve more value than it costs”.
Getting in Touch
Fee estimates and CVs are readily available. Quotes can typically be provided within two working days.
Email: fiona@fhmforensic.co.uk
Telephone +44 (0)7770 642491
