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Unlocking Value, Building Trust, and Driving Better Deal Outcomes Introduction  Lately, we’ve received a number of inquiries from clients wondering whether an independent valuation is necessary when preparing for a divestiture. It’s a common and important question. In mergers and acquisitions, while the purchase price often steals the spotlight, it’s the process behind that price, particularly valuation that truly determines a deal’s success. Among the many elements involved in an M&A transaction, an independent valuation serves as a key pillar. It provides objective grounding for negotiations and helps both buyers and sellers make informed, confident decisions. According to Capstone Partners & IMAP’s 2024-2025 Global M&A Trends Survey Report published in January 2025, unrealistic pricing expectations from sellers were the top obstacle to deal closings in 2024, which underscoring the growing recognition of how critical independent valuation is to a successful transaction. Whether you’re on the buy side or sell side, an independent valuation conducted by a qualified professional promotes transparency, reduces friction, and supports a fair exchange of value. In this article, we’ll explore how independent valuations empower M&A transactions and the specific benefits they offer to both sellers and buyers. For Sellers: Validating Value and Building Credibility       1. Supporting a Realistic Asking Price One of the first and most important questions a business owner faces when preparing for an exit is, “What is my business worth?” For many owners, their business represents not just a financial asset, but a deeply personal journey often the result of years, if not decades of hard work, sacrifice, and dedication. Given this emotional connection, it’s common for owners to develop an optimistic or even inflated perception of their company’s value. They may focus on the potential they see, the sweat equity they’ve invested, or anecdotal comparisons to other businesses that sold at high multiples, rather than relying on objective financial metrics and market conditions. While this perspective is understandable, it can lead to unrealistic pricing expectations that may hinder the sale process or deter serious buyers. An independent business valuator brings an objective, data-driven perspective to what is often an emotionally charged process for business owners. Unlike internal stakeholders who may have personal ties or optimistic expectations, a third-party valuator evaluates the business impartially, based on facts, not feelings. By conducting a thorough analysis of current market conditions, recent transactions involving similar companies (industry comparables), and the company’s own operational and financial performance, the valuator arrives at a fair and defensible estimate of value. The result is a realistic and well-substantiated valuation that sets appropriate expectations for the seller. It helps avoid the common pitfall of overpricing, which can discourage serious buyers and prolong the sales process.       2. Enhancing Buyer Confidence Prospective buyers devote a significant amount time, effort, and resources to identify attractive acquisition opportunities and reduce the risk of making a poor investment decision. M&A transactions inherently carry risk from overpaying for a business to uncovering unfavorable surprises during due diligence process, so buyers approach each deal with a high level of scrutiny. A central part of this process is understanding the value of the target business and whether the proposed purchase price aligns with its true worth. An independent valuation gives buyers greater confidence that the asking price is not arbitrary or inflated but grounded in economic reality. It also signals that the seller has taken the time to prepare thoroughly and is serious about engaging in a fair and transparent transaction. This professional approach fosters trust, which can smooth negotiations and expedite the due diligence phase. In addition to that, an independent valuation will be used to model and quantify potential synergies, such as cost savings from eliminating duplicate functions, improved supply chain efficiencies, or enhanced revenue opportunities through cross-selling or expanded market reach. These insights help buyers assess whether paying a premium is justified by tangible post-acquisition benefits, supporting a more confident and strategic investment decision. For Buyers: Reducing Risk and Facilitating Financing     1. Ensuring a Fair Purchase Price The value of a business isn’t always straightforward. Different buyers bring distinct strategies, perspectives, and goals to the table. For example, a financial buyer might prioritize immediate financial returns, while a strategic buyer could place more value on potential synergies or long-term market expansion. As a result, each buyer might assess the business differently, leading to varying valuations. While the independent valuation may not set the final transaction price, it provides an objective and credible benchmark that helps buyers evaluate the fairness of the asking price. An independent valuation becomes particularly important in situations where market data is limited or the industry is highly specialized. In niche sectors with few comparable transactions, it can be difficult for buyers to determine whether the seller’s asking price is reasonable. This level of insight provides buyers with the clarity and confidence they need to make informed decisions, helping to ensure they don’t overpay or take on unforeseen risk.       2. Supporting Financing Approval Given the complexity of M&A transactions, many lenders require an independent valuation as part of their lending process. An independent, objective valuation offers a clear and reliable assessment of the target company’s worth, which can significantly enhance a lender’s confidence in the deal. By grounding the transaction price in sound, impartial analysis, the valuation provides lenders with reassurance that the credit risk can be effectively mitigated. Furthermore, in situations where the acquired business or its assets are being used as collateral for the loan, the valuation becomes even more critical. In asset-based lending, where the loan is secured by the assets of the company (such as inventory, receivables, or intellectual property), the lender needs to have a credible, well-supported estimate of the value of those assets. The independent valuation provides this basis, ensuring that the collateral is adequately valued and that the lender’s security position is protected. Conclusion In today’s complex M&A landscape, where information is abundant but unevenly distributed, transactions are inherently challenging. Independent valuations bridge the

Hello: With personal tax season now amongst us, please access the link below to download Clearhouse LLP’s T1 Checklist, which will help us maximize your personal tax return this year. If you worked from home for all or part of 2024, please provide a copy of T2200 (if applicable), or state in your email you worked from home and our staff will send you a copy of our Work From Home template. In order to ensure your return is filed by the deadline of April 30, please submit all of your information by April 11. Once your return has been completed, you will receive an email to review the return that includes instructions on electronically signing the documents required to file. Please ensure the required documents are signed by April 25 so we may file your return on time. As you can imagine, the last few days prior to the April 30 deadline are very busy for the CRA site causing delays. This is why we are asking your assistance in getting your information to us and signing the required documents in a timely manner. Please also note that Clearhouse LLP offers US Federal and State tax preparation services. If you are interested in filing your US tax returns with our team, please reply back to this email and we can initiate the preparation of your returns. The advantage of using Clearhouse for both US and Canadian returns is the enhanced ability to utilize foreign tax credits appropriately. The deadline for US personal tax returns are April 15th 2025 for most filers, and therefore we would require that all information be sent to our team in timely manner once we send you the US 1040 Checklist. Please do not hesitate to contact us if you have any questions. ✉️ info@clearhouse.ca 📲 (647) 969 7382 Kindest Regards, Your Clearhouse LLP Team Click here to download the T1 Checklist (Canadian)

Dear Clients and Friends, At Clearhouse LLP, we understand the importance of staying informed about regulatory changes that impact your business. Following a recent court ruling, the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are reinstated as of February 19, 2025. Recognizing that U.S. reporting companies may need additional time to comply, FinCEN has extended the deadline by 30 calendar days, making the new deadline March 21, 2025. ​(FinCEN Notice, FIN-2025-CTA1). Background on the BOI Reporting Requirement  The Corporate Transparency Act (CTA) requires most U.S. corporations, LLCs, and similar entities to disclose information about their beneficial owners—the individuals who own or control the company. The goal of this requirement is to increase corporate transparency and prevent illicit financial activities (FinCEN). Previously, a federal court issued an injunction blocking the BOI reporting requirement. However, after further legal proceedings, the injunction was lifted, and FinCEN has reinstated the requirement, and businesses must comply by the new deadline.   Updated BOI Reporting Deadlines  FinCEN has adjusted the reporting deadlines to provide additional compliance time for businesses: ​ Newly formed entities (after February 19, 2025): Must submit their initial BOI reports within 30 days of formation. Previously filed reports: Companies that have already submitted BOI reports must report any updates or corrections within 30 days of the change. Entities with overdue deadlines (during the injunction period): Businesses whose reporting deadlines lapsed while the CTA was blocked now have until March 21, 2025, to comply. Extensions: Companies granted an extension (such as disaster relief extensions) must follow their adjusted deadlines. Exemptions for certain entities: Businesses involved in National Small Business United v. Yellen (as of March 1, 2024) are not currently required to file BOI reports. Who Must File a BOI Report?  Entities required to file include: U.S. corporations, LLCs, and partnerships created by filing with a Secretary of State or any similar office. Foreign entities registered to do business in the U.S. by the filing of a document with a secretary of state or any similar office. Some entities are exempt, including publicly traded companies, banks, and certain regulated entities (FinCEN FAQs). Filing Process & Compliance  Entities required to file include: BOI reports must be submitted electronically through FinCEN’s E-Filing System at boiefiling.fincen.gov. Required information includes: Full legal names of beneficial owners Date of birth Residential or business address Government-issued identification (passport or driver’s license) Failure to file may result in civil penalties of $500 per day and potential criminal charges for willful noncompliance (FinCEN). How Clearhouse LLP Can Assist  Our compliance team at Clearhouse LLP is here to assist you in understanding and fulfilling your BOI reporting obligations. If you have not yet filed due to the prior injunction, we strongly advise acting now. For further guidance or assistance, please contact us at ✉️ info@clearhouse.ca 📲 (647) 969 7382 Kindest regards, Your Clearhouse LLP Team

Dear Clients and Friends,   Navigating the complexities of cross-border taxation can be daunting. At Clearhouse LLP, we are committed to making this process seamless for you. Whether you’re a U.S. citizen living in Canada or a Canadian earning income in the U.S., staying on top of key tax deadlines is essential for compliance and financial success. This guide outlines the major U.S. tax dates for the 2024 tax year (filing in 2025). While we strive for precision, tax laws and deadlines can change, so always consult the latest IRS publications or our expert team for personalized advice.   Key Federal Deadlines for Individuals Date U.S. Residents U.S. Non-residents April 15, 2025 Form 1040 U.S. Individual Income Tax ReturnCommon applicable forms: FBAR (Form 114), Form 8621, Form 8938, Form 2555, Form 5471. Form 1040-NR U.S. Nonresident Alien Income Tax Return Common applicable forms: Form 8833, Form 8840. June 16, 2025 Automatic 2-month extension for U.S. citizens/residents abroad (restrictions apply). General filing date for those without U.S. income tax withholding or a U.S. office/place of business. October 15, 2025 Extended deadline for filers who requested extensions in April and June. Extended deadline for filers who requested extensions in April. December 15, 2025 Special 2-month extension (with IRS approval) for June filers. Extension deadline for filers who requested extensions in June.   Key Federal Deadlines for Entities (Assuming December 31st Year-End) Date U.S. Resident Entities U.S. Non-resident Entities March 17, 2025 Form 1120-S, Form 1065. Form 1065, Form 3520-A, Form 8804, Form 8805. April 15, 2025 Form 1120, Form 5472/5471, Form 1041. Form 1120-F, Form 5472/5471. June 16, 2025 N/A Form 1120-F (no office or place of business in the U.S.), Form 8804, Form 8805. September 15, 2025 Extended deadline for March filers. Also, for corporate taxpayers with a June 30th fiscal year-end date. Extended deadline for March filers. October 15, 2025 Extended deadline for April filers. Extended deadline for April filers. Important Notes Payment Deadline: Taxes owed are due by March 17 or April 15, 2025, regardless of the filing date. Late payments may result in penalties and interest. State Tax Deadlines: Some states have deadlines that differ from federal ones. Contact us for specifics. Extensions: Filing an extension gives extra time to file, but not to pay taxes. Payments should accompany extension requests to avoid penalties. Estimated Tax Payments: Due dates for 2024 are April 15, June 17, September 16, 2024, and January 15, 2025. Your Partner in Tax Planning Cross-border financial activities require careful tax planning to avoid double taxation and other pitfalls. The Canada-U.S. Tax Treaty offers relief for many scenarios, and our team is here to guide you through using it effectively. For questions about deadlines or assistance with your tax filings, contact us at info@clearhouse.ca or (647) 969-7382. At Clearhouse LLP, we’re here to simplify your tax journey and maximize your opportunities. Warm regards, Your Clearhouse LLP Team

Dear Clients and Friends,   The Fall Economic Statement introduced several updates aimed at enhancing the value of the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program. The expenditure limit for the 35% enhanced refundable credit available to qualifying Canadian-controlled private corporations (CCPCs) is increasing from $3 million to $4.5 million. The eligibility for the enhanced refundable credit will also be extended to include eligible Canadian public corporations. Furthermore, Canadian-resident corporations that are predominantly owned by one or more eligible Canadian public corporations will also qualify. Public corporations will have a $4.5 million expenditure limit, which will phase out based on their gross revenue. These changes related to the enhanced refundable credit will apply to taxation years beginning on or after December 16, 2024. The Fall Economic Statement also proposes reinstating eligibility for capital expenditures, allowing them to be both deducted from income and eligible for the investment tax credit. The new rule will apply to property acquired on or after December 16, 2024, as well as lease payments due on or after this date. For the income deduction, eligible expenses will include those incurred to acquire depreciable property that is intended to: Be used predominantly in the performance of SR&ED in Canada throughout its expected life; or Contribute substantially to the corporation’s value in carrying out SR&ED in Canada. For CCPCs claiming the enhanced refundable credit, capital expenditures will qualify for a refundability rate of up to 40%, as opposed to the current 100% refundable rate for regular expenditures. If you have any questions, please do not hesitate to contact us at: ✉️ info@clearhouse.ca 📲 (647) 969 7382 Kindest regards, Your Clearhouse Team

In today’s dynamic business landscape, amongst dropping interest rates, fluctuating stock markets, increasingly complex regulatory challenges, fears of a recession stemming from softening consumer spending and fierce competition in almost every sector, there is one important question that every business owner needs to ask: “What is the worth of my business in the market?” Whether you’re considering a merger, acquisition, succession planning, raising or borrowing funds, preparing financials or simply want to understand your company’s worth, a precise valuation can provide valuable insights, and paint a picture of where your business stands in the market relative to others. It can act as a reality check for business owners, providing an unbiased opinion on where their business stands and if it can survive in the market. In a series of articles, we will explore why this is such an important question and talk about the various aspects that need to be considered in the process. But how do you define value? In its essence, a valuation is the process of determining the ‘economic worth’ of your business taking into considerations various factors such as your business model, historical performance, availability of capital, investment in growth, market positioning and other external factors. Valuations, therefore, are a hybrid of art and science. There is then also the consideration of Price vs Value. While they may seem to be similar at first glance, price and value are different in that value is more subjective and can differ significantly based on the person, time and purpose, whereas price, in the context of a business, is factual and the outcome of a long and complex negotiation process. Therefore, the price may not be fully observable at the initial stages of planning. However, even when considering value, there are a variety of definitions that can only stir more confusion into the mix. Having said that, anything worth doing good takes a little chaos, and in the next article in this series, we will delve into some of these definitions in more detail and discuss how to pick the most appropriate one for specific requirements. A myriad of considerations for businesses Canada’s complex and dynamic business environment brings along a few different challenges and considerations that must be carefully taken into account when valuing a business, over and above its ability to generate cash flows and profits. Tax Implications: Canada’s complex tax regulations can significantly impact business valuations. Factors such as the Small Business Deductions, capital gains taxes, income taxes and provincial tax rules must be carefully considered. Industry-Specific Factors: Canada’s resource-rich economy and diverse sectors introduce unique challenges and opportunities. Valuations in industries like mining, forestry, and agriculture may require specialized expertise, while upcoming industries in tech, psychedelics and AI need significant amounts of data. While other factors such as changing consumer trends, business models of each player in the industry and adoption of technology can also have an important impact on businesses. Regulatory Environment: Compliance with Canadian regulations, including those related to corporate governance, financial reporting, and environmental standards, can influence a company’s value. Economic Factors: Canada’s economy is closely tied to the US and western markets. Recent fluctuations in interest rates, inflation, exchange rates, and commodity prices have had a significant impact on business valuations. Other business specific factors: Other business specific factors to consider include consumer retention, location and real estate, growth potential given the nature of the business, investment in assets, management team, retention of skilled employees, brand value, reputation and debt levels can all have an impact on business value. The Role of Professional Valuators Given that valuations are a regulated industry in Canada, with the CBV Institue leading the charge in setting industry standards and ensuring ongoing education for its members, engaging a qualified Chartered Business Valuator (CBV) with expertise in Canadian market conditions can be incredibly helpful. A professional can provide an objective assessment, ensure compliance with Canadian regulations, and help you navigate the complexities of business valuation. The bottom line Business valuation is a critical tool for Canadian businesses of all sizes. The primary objective here is to determine the most important value-generating aspects of your business. Identifying these critical areas is imperative for fostering business growth. Every business owner should recognize the specific elements within their operation that hold particular interest or value, thereby enhancing its overall worth and revenue potential and by understanding the unique factors that influence valuations, you can make informed decisions, protect your interests, and maximize the value of your business.

Running a business is like orchestrating a symphony – it requires meticulous planning, careful execution, and a deep understanding of the market and industry. As a business owner, when you get to the point of evaluating the value of your business, having spent significant amounts of time, effort and money on nurturing your business, whether for succession planning, investment or perhaps for a sale, you want to ensure that you get the best value possible for your business. This can be quite a bit more complex and challenging than it may seem to be at first glance. It requires careful planning, strategic analysis and a comprehensive understanding of what buyers are looking for. This means focusing not only on making money, but also on how efficiently your company runs, the recognition of your brand, and how attractive it looks to potential buyers. Focusing on these areas can set your business on the path to creating higher value and finding the right buyer for the best outcome. The question then is, what does this entail? Here are a few tips that we think can help: Start with understanding the current value of your business Before we can talk about the steps that are needed to increase the value of your business, it is important to first determine two key areas – What is your business worth now? What are the key indicators that drive the business value? Gaining insights into these areas can help you determine the areas that need focus to help boost business performance and value. A valuation can also help you gain past and present performance, as well as build a business plan. In situations like these, business owners could benefit from bringing on a business valuation expert, who can not only help determine value and corroborate this through various approaches and understand value under various scenarios, but can also help you take a deeper dive into the business’s financial performance and benchmark your business to industry standards and competitors, and determine areas of improvement. Enhance financial performance While simple to think of, and perhaps equally challenging to implement, focusing on enhanced performance, and not just profitability, can go a long way in justifying sustainable value in a business. Key areas of focus along with a few examples include: Boost long term profitability: Diversify revenue: Explore new markets, expand product lines, implement effective pricing strategies and ensure that there is sufficient diversification in revenue sources to support the business through turbulent times. Improve revenue through appropriate investments: Focus on reaching right target markets to help grow business revenue, and target contracts that lead to recurring or repeat business. Focus on cost efficiencies: Streamline operations, negotiate better deals with suppliers, and identify spending areas where additional efficiency could be created through the use of technology. Analyze internal processes to identify and eliminate bottlenecks thereby improving profitability. Cash is king: Focus on collections: Implement robust receivable policies and incentivize payments to minimize outstanding debts and ease cash flow. Conduct credit checks on customers to the extent possible to reduce bad debt situations. If collections are a large issue, consider bring in dedicated people or a team to help improve collections. Optimize inventory: Evaluate current inventory management and tracking systems to find ways to minimize excess inventory and improve inventory turnover. Consider alternatives to big ticket spending: For machinery that can depreciate quickly, consider leasing or financing items to avoid large cash outflows. Maintain comprehensive financial records: Maintain Accurate Records: With the growing focus on data collection and analysis, maintaining accurate and comprehensive records of all business dealing will help you be better understand and track your business, while also boosting the level of sophistication of the business, making it more appealing to investors who value transparency and reporting. Conduct Regular Financial Audits: Conduct regular financial audits to ensure compliance and identify any potential issues, before they reach a critical point and cause business failure. Focus on areas that can help your business stand out Most prospective buyers do not want to buy a business simply for a business plan or how much you generated in a single year. A business’ biggest asset and USP is how it differentiates itself from competitors, and the people who help drive and achieve that vision. Create strong customer relationships: While having customers is one a positive, keeping them happy is another thing completely. Turning one-off customers into loyal, long-term buyers is the ultimate value driver for a business. Build trust through service: Build a culture of exceptional customer service to develop customer loyalty and generate positive reviews. Cultivate long-term relationships with key customers to enhance recurring revenue. Build long term brand recognition: A company where customers relations are tied to the Company and can readily identify and associate with its brand, by building a reputation for quality and timely work will always be more valuable than a business where customer relations are concentrated with a single or few stakeholders. Embrace technology and innovation: Businesses that fail to leverage technology risk becoming obsolete. Identify areas where technology can enhance customer experience and operational efficiency. Common examples include customer relationship management (CRM) software to streamline sales and marketing, adopting cloud computing for improved data storage, safety and collaboration, leveraging e-commerce platforms to expand online sales channels, utilizing artificial intelligence (AI) for data analysis and customer service, and integrating social media marketing to build brand awareness and engage with customers. Develop a Strong Management Team: Build a Skilled Team: People are at the core of any successful business and the most highly valued companies always have the right combination of leadership and staff to carry out its long-term vision. Hiring and retaining people with the right experience, skills and a mindset for long term growth is crucial to a business’ success. Invest in training and development to build a capable and motivated team that can instill confidence in a business and its output. Ensure Succession Planning: Have a clear succession plan in place to ensure smooth

You might have heard terms such as “fair value,” “market value,” and “book value” thrown around frequently in the world of business and finance, and there is a good chance you might have considered all of these to refer to a fairly similar number. For business owners, having multiple definitions of these terms can create confusion and lead to significant challenges in decision-making, financial reporting, and strategic planning, and it is important to add that when looking at these in a little more detail, they do have several different meanings and understanding which of these definitions apply to your situation can be very important. Now it is important to highlight that while these various terms do carry different technical definitions, there are instances where two or more of these terms could have the same or at least a similar value. Also, some of these definitions only come into use in specific situations, depending on the industry and motivations for the valuation. In our previous article, we talked about the difference between price and value, and how this is important to businesses, and about the challenges with these varying definitions of value. In this article, we take a closer look at these varying definitions and hopefully create some order between the chaos of definitions. So first let’s break down these terms and explore the implications of their varying definitions. Book Value or carrying value: The most easily identifiable of all, this is the value of an asset or business as recorded on the balance sheet, calculated as the original cost of the asset minus any accumulated depreciation, amortization, or impairment costs. It represents the net asset value of a company from an accounting perspective. This is usually a good starting point for understanding the baseline value of a business. Adjusted Net Book Value (ANBV): A derivation of the book value, and commonly used by valuators to determine the actual floor value of a business, the ANBV of a business is based on adjusting the value of the various assets and liabilities of a business to their fair value in order to arrive at a value for the overall business. This is also a commonly used approach in asset-heavy businesses such as manufacturing and logistics. Fair Value (FV): Probably the most popular term to business owners, and one that is commonly present in various accounting standards including the IFRS and US GAAP, this term typically refers to the estimated worth of an asset or liability based on current market conditions. It is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair Market Value (FMV): A term more commonly used in Canada, and well defined by the CBV Institute and CRA, the FMV is similar to FV but emphasizes the willingness of both a buyer and a seller to engage in a transaction, given that both parties have reasonable knowledge of the relevant facts. This term is often used in legal contexts and tax assessments, and it is probably one of the most important terms for business owners based in Canada. Market Value: Market value represents the amount at which an asset would trade in a competitive auction setting. It reflects what the market is willing to pay for an asset at any given time, which can fluctuate based on various external factors. Replacement value: Often used in the world of intellectual property and certain types of assets, this is the cost of replacing a business or asset with a similar one, which could be in the form of cost of re-creating an asset from scratch or replacing it with a similar one. Intrinsic value: refers to the true, inherent worth of an asset, investment, or company, based on its fundamental characteristics rather than its current market price, which includes a business’ cash flow and earnings potential. Used commonly by investors as they try to identify undervalued businesses for investment opportunities. This is also a particularly important metric for startup investors, where investment risk is significantly higher. The Issues Business Owners Face Having a variety of definitions can absolutely create confusion over which term to use and when any of these might be applicable to your situation, given the myriad of other factors that already need to be considered. Some key challenges that do steam from this issue are: Inconsistent Valuations: Different stakeholders—investors, lenders, auditors, and tax authorities—may interpret fair value differently. For example, a business owner seeking a loan might want to use a higher fair market value to present a more favorable financial position, while a tax authority or an investor might apply a stricter or different definition. This can lead to discrepancies that complicate negotiations and reporting, and comparisons of performance between different companies. Choosing the right definition and following this consistently is therefore very important. Regulatory Compliance: Different accounting standards, such as the US GAAP and IFRS, and here in Canada, the CBV Institute, define fair value differently. For business owners and investors operating in multiple jurisdictions, aligning these definitions can be daunting and may require additional resources or expertise. Subjectivity in Estimation: Fair value often requires subjective judgment, especially when market data is limited or unavailable, and definitions often help to direct this subjectivity in certain ways. Business owners may face difficulties in determining fair value accurately, leading to potential misstatements in financial reporting. This subjectivity can also raise concerns about the reliability and transparency of financial information. Market Conditions and Timing: Market fluctuations can cause rapid changes in value, which can be problematic for business owners who need to make timely decisions based on current valuations. An asset valued one day, using a certain definition, may not hold the same value the next due to changes in market conditions, economic downturns, or shifts in consumer demand. Investment Horizon: The appropriate definition of value may vary based on an investor’s time horizon. Short-term traders may focus

As a business owner or shareholder, at some point you may have thought about what the value of your business is, perhaps while thinking of raising funds, evaluating the return on your investment or simply considering the future of your business. And thinking about value, you may have question what the right way would be to value your business. Perhaps using a market benchmark? Or cash flows? Or perhaps a rule of thumb specific to your industry? Ultimately, is there a right way to value your business, or is there one that is preferred over another? In our previous article, we mentioned that business valuations are a hybrid of art and science. At its core, business valuations are about determining the ‘economic worth’ of your business. This involves assessing various elements, including financial performance, market dynamics, operational efficiency, and future growth prospects. Given this complexity, various business valuation methods exist, each designed to help you accurately gauge your company’s worth under different circumstances. Now that is a lot of words, but what does that mean? In simple terms there are a variety of factors to consider when choosing the right approach to value a business, and so lets first start by taking a look at some of the most popular approaches and where these may typically be applied: Business Valuation Methods When considering how to value your business, there are 3 broad categories that valuation approaches fall under – 1) the asset / cost approach, 2) the income approach and 3) the market approach. 1. Asset / Cost Based Method Driven by a business’ balance sheet, this method evaluates the value of a business by assessing its net assets. This approach can be executed in two ways: Going Concern Asset-Based Method: This method calculates the net value of business assets as listed on the balance sheet, subtracting liabilities to arrive at the net worth. Liquidation Asset-Based Method: Here, the focus is on determining the net cash a business would generate if all its assets were sold and liabilities cleared. This method is particularly suitable for businesses with clear distinctions between the company’s assets and its owners and where assets make up a significant portion of business value. For instance, manufacturing corporations, which operate as separate legal entities, can utilize this method effectively. Conversely, sole proprietorships might find this method less applicable, as assets may be personally owned and may be used interchangeably for business or personal purposes. 2. Earnings Value / Income Method Driven by cash flows, this approach focuses on a business’s ability to generate future income. It utilizes historical performance and financial data to forecast potential earnings. Capitalized Cash Flow (CCF): This method estimates value based on historical earnings, projecting future revenue generation based on past performance. Discounted Cash Flow (DCF): This method predicts future cash flows and adjusts them to present value, offering a current worth based on anticipated performance based on recent business efforts. The earnings value method is ideal for established businesses with a consistent history of growing revenue and a push for profitability. It requires a solid foundation of data, including client relationships and revenue-generating systems, as well as an understanding of all the qualitative factors that impact the business. However, it’s essential that the assumptions underpinning these projections are based on tangible, reliable factors to withstand scrutiny. 3. Market Value Method Perhaps the most common method and driven by industry benchmarks, this method determines business worth by comparing it with similar enterprises in the market. It relies on recent data from comparable businesses to establish a benchmark. For example, if a peer company in your industry was recently sold within a specific price range, this method can help you estimate your business’s value based on such transactions. This approach is particularly effective in saturated industries where frequent buyouts occur, allowing for clearer comparisons, or where the path to profitability and cash is not immediately clear and market sentiment is a key driver of value. Choosing the Right Valuation Method Given the variety of options, what then is the right approach for valuing your business? In truth, selecting the appropriate valuation method hinges on several factors: Purpose of Valuation: Consider why you are valuing your business. Different scenarios, such as selling, merging, or securing financing, may necessitate different approaches. Nature of the Business: Recognize the distinct characteristics of your industry. For example, asset intensive businesses cannot be valued in the same way as a professional services business, given the stark difference in their value drivers. Legal Requirements: Ensure the chosen method meets any legal standards applicable to your situation. Courts, tax authorities and account bodies may scrutinize the assumptions behind valuations, particularly if they seem optimistic or are generated under non-standard circumstances. Stage of the business: An early stage business is generally much harder to value than a mature business, and the approaches used are generally significantly different due the predictability of cash flows. The reality therefore, unfortunately, is that choosing a valuation approach is not simple. Each business is different, in that is has a unique set of value drivers and circumstances which may be tough to capture directly using just a single approach. Choosing the right approach therefore required careful evaluation of such factors and different approaches may lead to very different results. Professional evaluators, such as CBVs here in Canada, will generally look to using some combination of these approaches to arrive at a value that is suitable, both from a qualitative and quantitative perspective, with the aim of reflecting many of these factors in the various assumptions that are involved in arriving at the fair market value of a business What does this mean then for business owners? Ultimately, there is no right answer to the question of what the best approach to value a business is. Within the major categories we highlighted above, there are a multitude of ways in which business valuation can be approached, and the right approach can come down to availability of data, time

New rules for trust reporting are coming for 2023 returns Dear Clients and Friends, Canada Revenue Agency’s (CRA) new administration will require most trusts to file a T3 Trust Income Tax and Information Return annually for tax years ending on or after December 31, 2023. The reporting obligations have been extended to require trusts to not only have to file a T3 return, but also report additional information on a new schedule that will accompany the T3 return. Resident trusts and deemed resident trusts will need to disclose personal information regarding settlors, trustees, beneficiaries and persons who have the ability to exert control or override trustee decisions. Additionally, Canadian resident trusts and non-resident trusts are required to file a T3 Return regardless of whether income is earned in the trust. The enhanced reporting requirements were first announced in the 2018 federal budget and three versions of draft legislation were subsequently released. These rules were originally proposed to begin to apply for 2021 T3 returns, but implementation was then deferred and will now apply to taxation years that end after December 30, 2023. What information should you retain in order to meet the enhanced trust reporting requirements? The legal name, address, date of birth (individuals), jurisdiction of residence, and tax identification number of the trustees, beneficiaries, settlors, executors, administrators, and liquidators of the trust. The trust account number – If you do not have a trust account number, you can apply for one by completing the T3 Application for Trust Account Number form (T3APP) that can be accessed through CRA’s website using the following link (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t3app.html#shr-pg0). The application can be submitted online through your CRA My Account. All sources of the trust’s income, including foreign income and property. Penalties for Non-Compliance Given the extent of the changes and the severity of penalties for non-compliance, taxpayers should be getting ready to meet these new obligations for 2023 T3 returns. The penalty for failing to file a T3 return or beneficial ownership information will be equal to $25 per day late, with a minimum of $100 and a maximum of $2,500. However, knowingly failing to file a T3 return or beneficial ownership information will result in a significant additional penalty of 5% of the maximum value of property held by the trust in the particular year, with a minimum penalty of $2,500. This penalty would also apply to false statements and omissions amounting to gross negligence as well as a failure to respond to a CRA demand to file. Clearhouse LLP can assist our clients with the preparation of T3 Returns in compliance with the new requirements. Please do not hesitate to contact us at info@clearhouse.ca or 647-969-7382 if you have any questions. Kindest Regards, Your Clearhouse LLP Team