During a divorce, a business may qualify as a marital asset. Along with long-term savings and real estate, it could be one of the largest assets that a person owns.
As such, it is important to conduct a business valuation when dividing marital property. Both parties may disagree on what the business is worth, so an official valuation can provide guidance. Below are three different ways this can be done.
Market comparisons
In some cases, similar businesses have recently been sold. This can provide an indication of how the company should be valued under current market conditions. It is important to consider the size of the business, the specific industry and other key details to ensure that the comparison companies were similar in value and structure.
Assets and obligations
Another approach is to examine the business’s assets and financial obligations. To determine the value of the company itself, a person may look at assets such as real estate, machinery, inventory and stock. Financial obligations, such as business loans or commercial lease obligations, can then be subtracted from the total value.
Projected cash flow
Finally, the business owner may attempt to project how much money the company is expected to earn in the future. For example, perhaps the business has consistently generated stable revenue over the last 10 years, with profits increasing by roughly 5% annually. These figures can help estimate future earnings and determine the overall value of the business.
Conducting a valuation is just one of the first steps in the process. When dividing complicated assets during a divorce, it can help to work with an experienced attorney.