Before comparing figures, always specify what is being measured, on what date, and for which decision.<\/p>\n
An accountant receives an expert valuation report (CBV \/ EEE) for a client: the fair market value (FMV) of the shares is set at $5M. Six months later, a purchase offer comes in at $3.8M.<\/p>\n
The classic question immediately arises: \u201cWhich number is correct?\u201d<\/p>\n
The most honest answer is simple: the question is poorly framed. Fair market value and sale price do not measure the same thing, do not serve the same purpose, and often refer to different objects and dates. Comparing them without adjustment is like comparing Gatineau\u2019s temperature in February to Montreal\u2019s in July to conclude that a thermometer is broken.<\/p>\n
Key takeaway: Before placing two amounts side by side, you must align three parameters: the object, the date, and the decision. Everything else follows.<\/p>\n
1. Fair Market Value: A Theoretical Construct<\/b><\/b><\/p>\n
Fair market value (FMV) is not an observed price but a reasoned conclusion developed in a hypothetical market.<\/p>\n
CBV Institute definition: \u201cFair market value is the highest cash price, expressed in cash equivalents, that can be obtained in a transaction in an open market where competition is unrestricted, between a hypothetical willing buyer and a hypothetical willing seller, both competent, under no compulsion, and reasonably informed of the relevant facts.\u201d<\/p>\n
Legal definition: Canadian jurisprudence (Henderson Estate v. M.N.R.) confirms it is the price forged \u201con the anvil of supply and demand\u201d in an open market, free of constraints and undue pressures.<\/p>\n
In this theoretical framework, buyer and seller are rational, the market is exposed to all potential buyers, and the deal is settled in cash.<\/p>\n
The CBV Institute calls these notional valuations. They are required when no real market exists: tax reorganizations, shareholder disputes, matrimonial regimes, or buy-sell agreements. FMV answers: \u201cWhat would this interest be worth in an ideal market at a specific moment?\u201d<\/p>\n
2. Sale Price: An Empirical Reality<\/b><\/b><\/p>\n
Price is simple: it is the exact consideration a real buyer agreed to pay a real seller in an actual negotiation.<\/p>\n
Price reflects all the human and economic factors that FMV tries to neutralize:<\/p>\n
Watch the structure: A nominal $5M price paid over five years and contingent on future earnings does not equal an FMV of $5M payable 100% cash at closing.<\/p>\n
3. The Three Parameters to Align Before Comparing<\/b><\/b><\/p>\n
To make a useful comparison between a valuation and a purchase offer, break down these three elements:<\/p>\n
A. The Object Valued<\/b><\/b><\/p>\n
A valuation report may cover 100% of shares, a 30% minority interest, or the net operating assets of a business. A purchase offer often targets a different scope (e.g., asset purchase only, excluding the building or excess cash). Comparing FMV of all shares with an offer for only the operating business is a common mistake.<\/p>\n
B. Valuation Date<\/b><\/b><\/p>\n
Value is a photograph, never a film. CBV Standard No. 110 requires explaining the exact economic context at the precise valuation date. Between a tax valuation date and an offer received 12 months later, interest rates, the loss of a key customer, or industry conditions can radically shift the picture.<\/p>\n
C. Decision Purpose<\/b><\/b><\/p>\n
The objective changes the approach:<\/p>\n
Why a Gap is Not an Error<\/b><\/b><\/p>\n
A difference between FMV and sale price does not mean the valuation is wrong. It simply reflects the specifics of the real market:<\/p>\n
As Justice Cattanach noted in Henderson Estate, the purpose of a valuation is to establish a defensible, reasoned FMV\u2014not a value \u201cabsolutely precise to the penny.\u201d FMV provides an anchor; price reflects a negotiation.<\/p>\n
Implications for Your Files<\/b><\/b><\/p>\n
For accountants, lawyers, tax advisors, and bankers, the golden rule is to ask the right starting question:<\/p>\n
\u201cDo the two amounts refer to exactly the same object, on the same date, and for the same decision?\u201d<\/p>\n
In most cases, the answer is no\u2014explaining most of the gap without needing to challenge discount rates or multiples.<\/p>\n
This approach protects the client by ensuring a tax valuation is not mistakenly used as a negotiation floor, or a pressured offer does not compromise rigorous tax planning.<\/p>\n
Discuss Your Situation<\/b><\/b><\/p>\n
Each file has its own specifics regarding the object, date, and decision. Need to reconcile a valuation report and a purchase offer for a client, or prepare a transactional reorganization?<\/p>\n
The PME Business Valuators team supports owners, buyers, and professionals across Canada to bring clarity to your decisions.<\/p>\n
Contact us:<\/p>\n
\ud83d\udce7 Email: info@jcdesnoyers.ca<\/p>\n
\ud83d\udcde Phone: 877-734-4030<\/p>\n
This article provides general information and does not constitute professional advice or a valuation report. Each situation requires an analysis based on its own facts, date, and purpose.<\/i><\/p>\n
SOURCES:<\/b><\/p>\n Before comparing figures, always specify what is being measured, on what date, and for which decision. An accountant receives an expert valuation report (CBV \/ EEE) for a client: the fair market value (FMV) of the shares is set at $5M. Six months later, a purchase offer comes in at $3.8M. The classic question immediately […]<\/p>\n","protected":false},"author":5,"featured_media":3869,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_seopress_titles_title":"","_seopress_titles_desc":"The fair market value of a business and its selling price often differ. Clarify what is valued, at what date, and for which decision you are making.","_seopress_robots_index":"","_seopress_robots_follow":"","_seopress_robots_imageindex":"","_seopress_robots_snippet":"","_seopress_robots_primary_cat":"","_seopress_robots_breadcrumbs":"","_seopress_robots_freeze_modified_date":"","_seopress_robots_custom_modified_date":"","_seopress_robots_canonical":"","_seopress_social_fb_title":"","_seopress_social_fb_desc":"","_seopress_social_fb_img":"","_seopress_social_fb_img_attachment_id":0,"_seopress_social_fb_img_width":0,"_seopress_social_fb_img_height":0,"_seopress_social_twitter_title":"","_seopress_social_twitter_desc":"","_seopress_social_twitter_img":"","_seopress_social_twitter_img_attachment_id":0,"_seopress_social_twitter_img_width":0,"_seopress_social_twitter_img_height":0,"_seopress_redirections_value":"","_seopress_redirections_enabled":"","_seopress_redirections_enabled_regex":"","_seopress_redirections_logged_status":"","_seopress_redirections_param":"","_seopress_redirections_type":0,"_seopress_analysis_target_kw":"","_seopress_news_disabled":"","_seopress_video_disabled":"","_seopress_video":[],"_seopress_pro_schemas_manual":[],"_seopress_pro_rich_snippets_disable_all":"","_seopress_pro_rich_snippets_disable":[],"_seopress_pro_schemas":[],"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3873","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-non-categorise"],"_links":{"self":[{"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/posts\/3873","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/comments?post=3873"}],"version-history":[{"count":3,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/posts\/3873\/revisions"}],"predecessor-version":[{"id":3876,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/posts\/3873\/revisions\/3876"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/media\/3869"}],"wp:attachment":[{"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/media?parent=3873"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/categories?post=3873"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jcdesnoyers.ca\/en\/wp-json\/wp\/v2\/tags?post=3873"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n