Business Valuation for Mediation

Mediation works when the parties can talk about how to divide what they have. It stalls when they cannot agree what they have. Where a business is in the pool, that is the usual sticking point: one party believes it is worth a great deal, the other believes it is worth very little, and the mediator has no way to move the conversation forward while the two figures sit so far apart. An independent business valuation, obtained before the mediation, is often what makes the rest of the day possible.

Why the business is the sticking point

Houses have comparable sales, superannuation has statements, and bank accounts have balances. A privately owned business has none of those things. Its value depends on what it can be expected to earn, what the owner is really paid, what it owes, and how far it depends on the owner personally. Those are questions of judgement, and the two parties, quite genuinely, judge them differently. Without an independent figure the mediation becomes a negotiation about the valuation rather than the settlement.

What a valuation brings to the mediation

An independent valuation gives the mediation a figure that neither party chose and both can read. It also gives the parties a shared account of the business: what the earnings are once the owner is paid a commercial wage and the private expenses are removed, what the debt is, what the working capital needs are, and how much of the goodwill would transfer to a purchaser. Disagreements do not disappear, but they narrow. Instead of "the business is worth a fortune" against "the business is worth nothing", the discussion becomes "I think the owner's replacement wage is too low" or "the last year was not typical", which are questions a mediation can actually work with.

The report is written to be read by both parties and their advisers. Every adjustment and assumption is explained, so the party who did not run the business can see why the figure is what it is, and the party who did can see that the things they worry about, the hours, the risk, the dependence on them, have been taken into account.

When to obtain it

Early enough that both parties and their advisers can read it before the mediation, and late enough that the documents reflect the current position. In practice that means allowing time for the documents to be gathered, the valuation to be prepared and the draft to be reviewed for factual errors. A Settlement Valuation is generally completed within seven business days after payment and receipt of all required information, subject to complexity, so the document-gathering stage is usually what determines the timetable. Where a mediation date is fixed, tell us at the enquiry stage and we will say whether it can be met.

Instructing it jointly or alone

A Settlement Valuation can be instructed by one party or by both. A joint instruction has obvious advantages in a mediation: both parties receive the same document checklist, the same draft for factual review and the same final report, and neither can say the other chose the valuer. Correspondence goes to both sides equally.

A single-party instruction is also legitimate and is sometimes the only practical option, for example where the other party is not yet engaged in the process. The valuation is reached the same way whoever instructs it; we do not prepare a higher figure for one party or a lower figure for the other. The report is still written so the other party and their advisers can follow the reasoning, because a report that only one side can accept is of little use in a mediation.

What the report covers

The Settlement Valuation generally includes a review of the business and ownership structure, analysis of the financial statements and management accounts, normalisation of earnings, consideration of owner remuneration and private or non-recurring expenses, selection and explanation of the valuation methodology, consideration of business-specific risks, an assessment of the sources of goodwill and how far they depend on the owner, calculation of enterprise value and equity value, valuation of the relevant ownership interest and a written independent report, with a draft for factual review before finalisation.

What the mediator can and cannot do with it

A mediator does not decide the value of the business and does not rule on the report. What the mediator can do is use the report as a shared reference point, help the parties identify which findings they accept and which they dispute, and keep the conversation on the settlement rather than the valuation. Where a party disputes a specific finding, the mediator can help the parties decide whether the point is large enough to matter to the outcome, which is often not the case.

If the mediation does not settle

Some mediations do not settle, and the matter proceeds to court. The Settlement Valuation is prepared for negotiation and mediation purposes. It is not prepared for filing or reliance as expert evidence in court. If your matter later requires an expert report for court, we will assess whether the initial work can be carried forward and provide a separate quotation before proceeding. The appointed expert must independently review the material and may require further information or analysis.

The Settlement Valuation fee is not automatically credited against an expert engagement, though unnecessary duplication is avoided where appropriate. Where your lawyer expects from the outset that the matter will need expert evidence, it may be better to begin with a Court Expert Valuation, and we will say so at the scope stage.

Cost and timing

The Settlement Valuation is a fixed fee of $2,995 + GST for one business or ownership interest valued at one date from orderly records. Where the enquiry shows a materially different scope, we say so before starting. A Court Expert Valuation, where one is required, is quoted from $8,995 + GST with the final fee confirmed after scope review. All fees exclude GST. The fees page sets out what each service includes and what is separately charged.

Where to from here

If a mediation is approaching and the business is the item in dispute, start a Settlement Valuation. Tell us the mediation date, whether the other party is represented and whether a joint instruction is possible. Mediators and family dispute resolution practitioners who refer matters can read more on the page for family-law professionals; individuals can read what to expect.

This is general information about the use of business valuations in mediation. It is not legal advice. Whether a valuation is appropriate for your mediation, and how it is used, are matters for you, your lawyer and the mediator.