Business Valuation And Divorce — Plan For The Unforeseen

A business valuation helps plan for unforeseen circumstances, details an exit strategy for the owners and lays out an execution plan for expansion; Business valuations use many different ways to come up with a value but what is always relevant is the business assets, liabilities, income, benefits and the current market in and outside of any particular industry sue.

Benefits of a Business Valuation

As a business grows and expands through the years, an owner could use a business valuation to keep employees motivated by offering stock options or additional compensation which would be directly related to the value of the business. A valuation also gives leverage to the business owner who wants to expand and obtains a valuation to present to a potential lender. The information from a business valuation can also be used to recruit key employees or used for employees who are looking at retirement. Another very important consideration is that a business valuation can be used for value in the event of a dissolution of marriage, or when one partner is buying out the other partner or when a business owner is going to have their child come into the business or just seeking investors and needs to know the worth of a business.

There are several methods to value a business and each methods considers more heavily one or more of the following factors: Value of equipment, inventory, property, liquid assets and any other property the company owns, as well as management structure, projected earnings, share price, and of course revenue. The best valuation method for you depends on why you need the valuation, the size of your business, and the specific industry.

Business Valuation Methods

1. Market Value Business Valuation Method

2. Asset-Based Business Valuation Methods

3. ROI-Based Business Valuation Method

  • Discounted Cash Flow Method or the income approach which is based on cash flow projections that are discounted to present value.
  • Capitalization of Earnings Method which calculates the business’s future profitability based on cash flow, ROI, and expected value. This method works best for businesses that are stable since the calculation assumes that once the calculation is done it will remain stable for a long period.
  • Book Value method calculates the value of the business’s equity (assets minus liabilities) as listed on the business’s balance sheet.

How do you choose which valuation method to use?

Valuation of “Personal Goodwill”

Often times during a divorce we will see a business struggling and need to determine if it is real or is it a tactic in the divorce proceedings. An historical look at the business activity can often times tell a story of what is going on. A business valuator should be made aware of a divorce is part of the equation.

In a divorce situation, it is best to have a valuator brought in early in the case to help with the discovery process and make sure you ask for and receive the necessary information. Good reliable data is crucial for a good valuation. The business valuators I have worked with have lists of documents that are needed for valuation which are more than simple financial statements and tax returns. You can find a business valuation expert from the American Society of Appraisers (ASA), American Institute of Certified Public Accountants (AICPA), Institute of Business Appraisers (IBA), and National Association of Certified Valuation Analysts (NACVA).

If you’re facing a divorce and it is common to have concerns about dividing the various kinds of property and debts accumulated during the marriage. When you need assistance and advice from knowledgeable and experienced divorce attorneys, contact Anderson & Boback and we’ll be ready to help you with all aspects of your divorce including business valuation in divorce.

THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/property-division/business-valuation-divorce-planning/

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