Recently, Rebekah Smith and Keith Hock, Directors of GBQ’s Forensic & Dispute Advisory Services, hosted a webinar addressing the impact COVID-19 has had on actual financial results versus the impact it will have on projected financial results and the impact on other damage calculations, valuations and income considerations.
There is no doubt that COVID-19 brought with it many uncertainties for business owners. At first, business owners were wondering if and/or when aid would be available, how long the pandemic was going to last and how they could adapt to keep their business open. Even now, with things getting back to “normal,” there is still uncertainty. Business owners are now asking themselves how to adjust and adapt going forward in the new “normal.” So how do these same questions affect financial engagements in litigated matters?
As Rebekah and Keith discussed in their webinar, there are three main issues:
- The forward-looking nature of business valuations. Although historical information is relied upon for performing the valuation of a company, valuations are forward-looking in nature. For example, when COVID-19 began, there was tremendous uncertainty about what the near-term and long-term future held. As this last year has unfolded, many now have a better view of the future. Rebekah and Keith discussed the importance of reviewing the general economic environment to determine the temporary or permanent nature of COVID-19’s impact, the outlook for the industry, and other key considerations related to the forward-looking nature of valuations.
- The valuation date dilemma and the “known or knowable” argument. COVID-19 has presented a unique issue in selecting the valuation date (particularly if you were selecting between December 31, 2019 and December 31, 2020) because, typically, valuation experts quote the standard that says an expert should consider what is known or knowable as of the valuation date. Rebekah and Keith discussed selecting a valuation date and, depending on the valuation date, what you do about COVID-19 impacts.
- Income considerations. Finally, the forward-looking nature and the selection of the valuation date impacts the determination of an individual’s earnings – whether it is for commercial litigation (wrongful termination or other employment disputes and wrongful death) or family law (establishing income for support purposes). Rebekah and Keith discussed additional considerations when determining income in the COVID-19 era, including temporary or permanent reductions in income, treatment of unemployment benefits and considerations for business owners.
Bottom line, COVID-19 requires experts and valuators to be thoughtful about how to incorporate the impacts of COVID, as well as creative problem solving to reach resolutions. To learn more, check out the recent webinar by clicking here.
