Preparing Your Client for a Business Valuation Deposition
In a business valuation case, the client's deposition and the expert's report are read against each other. The first place cross-examination looks for a weakness is a place where the client's testimony and the documents or the report disagree.
The insight: the client is usually the expert's source of facts
A valuation expert relies on information from management: how the business operates, what the owner does, which expenses are personal, what to expect next year. If the client testifies to something different, either the report or the testimony loses credibility. Preparation is about making the testimony accurate and informed, not rehearsed.
Topics opposing counsel will probe
How the business makes money. Customers, suppliers, seasonality, competitors, and what drives the margins.
The owner's role. Hours worked, duties, and who would do the work if the owner were gone.
Compensation and perks. What the owner is paid, who sets it, and what the company pays for that is also personal.
The financial statements. Who prepares them, how often, and what the client relies on to run the business.
Tax choices. Why the entity is structured as it is, why distributions and salary are set as they are, and what the depreciation elections reflect.
Related parties. Leases, loans, and payments involving family members or the client's other entities.
History and outlook. Why the business grew or declined, and what the client expects. Statements about the future are tested against what the client told lenders and what the numbers show.
Prior valuations, offers, and loan applications. The client should know what exists and what it says.
The financial declaration. Every figure the client signed should reconcile to the records before the deposition.
Practical points for the client
Testify from knowledge or from documents. If the client does not know a number, the answer is that, not an estimate.
Review the documents the other side is likely to use, especially tax returns, loan applications, and the financial declaration.
Avoid characterizations such as "it's worthless" or "it's booming" that the numbers do not support.
Be consistent with what was told to lenders, insurers, and the IRS.
How your expert can help
An expert can prepare two documents for you, without coaching anyone's testimony:
A reconciliation memo listing each figure in your client's declaration and disclosures that does not tie to the records, so the client can learn the answer before being asked
A question map for the other side's deposition, built from the numbers: the areas where the records raise questions that the other party can answer or cannot
The second is often more valuable than the first. An examination built from the financial analysis is tighter than one built from the documents alone.
Questions to ask your expert
Which figures in our client's declaration do not tie to the records?
Which topics will the other side's report lead them to probe?
What should our client review before the deposition?
What are the five best questions for the other party, based on the financial records?
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