Dear Carolyn, I am a restaurant owner. I separated from my estranged wife June 30, 2019. In going through the separation and divorce process, my lawyer had a business valuation done for the restaurant for June 30, 2019, as the valuation date prior to COVID. Here I am in November 2020, and with COVID the restaurant is not doing so well. I have had to be closed many days. The seating capacity in my restaurant has been dramatically reduced. I got a little PPP money that kept the restaurant alive, but the restaurant is undoubtedly doing poorly compared to June 30, 2019. Is there anything I can do to get the restaurant value reduced for equitable distribution? The restaurant just isn’t worth what the June 30, 2019 appraisal says that it is worth.
Dear Restaurant Owner,
You ask a great question, and yes, there are answers. First, please ask the appraiser to either create an addendum to the report for the subsequent event of COVID-19 or better yet, do another valuation at the current value.
PPP money is a one-time event, as far as we know now. The AICPA has issued FAQS to valuation professionals for four major considerations: (1) How will the PPP money be treated by the business? Will it be forgiven or a debt? This determination impacts the projected net income or cost of capital. (2) The SBA covered six-months of the cost of the PPP money, i.e., PPP money was interest-free. How did this affect the business? (3) If the business valuator is using a market approach, did comparable companies also receive PPP money? (4) Does acceptance of PPP money indicate the business is under duress, and as a result, past financials are no longer indicative of future operations? Will your business fully recover, and how long might this take?
Luckily, North Carolina law permits the trial court to take into account diminished value post-separation and prior to trial/settlement. Certainly, COVID-19 impacts your ability to buy-out your estranged for her portion of the restaurant.
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