Earlier this week, I had the pleasure of hosting the Family Dispute Resolution Institute of Ontario’s webinar on “Special Considerations When Valuing a Family-Owned Business” featuring Tom Strezos, Adam Guyatt, and Claudio Martellacci of Grewal Guyatt LLP.  A link to their article on this topic is available here.

In the estates context, we often encounter situations where a family business needs to be valued after death.  While we will often defer to experts for assistance in this regard, it can be helpful to keep in mind some considerations unique to family businesses that might affect valuation.  These may include the following:

• Payroll considerations: including whether any family members are on the business payroll and paid compensation greater or less than standard market rates;
• Related party transactions: for example, whether a family member owns a supply company and that relationship may increase or decrease business expenses and impact its value upon any change in that relationship;
• Non-operating assets or liabilities: whether there are investments in assets that do not impact cash flow directly or liabilities payable to family members;
• Internal controls and governance: such as whether additional staffing costs would need to be considered as part of the valuation to reflect the situation if certain family members were no longer involved in the operations of the business;
• Transferability of goodwill and discounts for reliance on certain individuals: some family businesses may have limited assets beyond goodwill and it can be worthwhile to consider how a departing family members (such as a divorced spouse or incapable or deceased family member) may impact value going forward.

These considerations may be relevant to probate applications, estate administration, and certainly where there are claims against an estate or specifically against a family business.

Also discussed during yesterday’s webinar was the idea of business valuation expert hot-tubbing, whether formally at trial or otherwise working together in a similar manner to try and determine a reasonable value of a company for the purposes of settlement discussions.  This is an Interesting concept that may work well for some estate matters where valuation issues are at play.

A recording of this week’s FDRIO webinar is available to FDRIO members free of charge and will be replayed at a fee for non-members later this month.  More information is available at fdrio.ca.

Thank you for reading.

Nick Esterbauer