When you are the owner of a closely held business who is going through a divorce, one of the most challenging aspects of your proceeding is valuing the business for property division purposes. Unfortunately, there is no magic formula or one approach to business valuation. However, here are three of the more common methods that are often used to help determine a business’s worth.
A market-based approach makes use of the sale prices of comparable businesses in your area. The major drawback of this method is that it assumes all things are equal. Your business is likely profitable because it differs from your competitors in some way. However, this is an effective means of helping you get an idea of your company’s approximate worth.
This is arguably the simplest approach to business valuation. To determine a price tag, you simply add up the value of your assets and subtract that number from your liabilities. It’s important to include intangible assets, such as trademarks, in your figures. However, some things, such as goodwill, are impossible to place a price on.
This approach also utilizes a formula. A specialist will help normalize the costs of running your business, including expenses and salaries. From there, you would apply a capitalization rate. The downside of this approach is that it relies on presumptions about the future performance of your company. As you know, things can vary wildly from year-to-year and nothing is guaranteed.
Divorce itself can also impact the value of your business
A divorce can have a major impact on the value of your business. You may not be able to give your business your full and undivided attention. This can impact everything from daily operations to employee morale. You should keep this in mind as you work toward an equitable division of property.
Business valuations are complex. You should work closely with a skilled legal professional who can help you determine the best way to place a price tag on your company.