You’re getting a divorce, your spouse is seeking an interest in your
business or in the increased value of your business based on your efforts
during the marriage, and now the attorneys and the Court are talking about
doing a business valuation.
What is this and what does it entail?
In simplest terms, a business valuation puts a dollar amount on what the
value of your business is and includes a calculation of not only the “nuts
& bolts” and inventory but also includes other not so visible assets
such as your reputation with customers and in the industry and retention
of current customers – also known as “goodwill”.
An accountant or CPA, who usually has obtained further education and specialization
in valuing businesses, will be retained by one or both of the parties
to examine the books and records of the company, tax returns, inventory
lists, and market analysis to perform the calculations necessary to come
up with a valuation figure for the company and from there calculations
of your interest or of any increase in value attributable to the marital
community depending on the situation.
Much like a real estate appraisal, a business valuation expert will utilize
three (3) different approaches to analyze and reach a conclusion on the
value of your business – the income approach, the asset approach,
and the market approach.
Which one of these approaches the business valuator eventually determines,
in their opinion, gives the most accurate and “best” valuation
for your business can be dependent on many different factors, such as
whether your business is a service-based industry or manufactures a specific
item, whether it is a “niche” business with little marketability
or the type of business that transfers easily on a regular basis, and
the condition of your books and records. As such, opinions between business
valuation experts can vary depending on the specific facts and circumstances
of your business.
Next month, our four part blog series will explore each of these approaches
more in depth to give you a feel for not only each of the approaches,
but also how these might be used in a sample calculation of the community
interest in any increased value in your business.
If you are facing the prospect of a divorce and likely valuation of your
business, you need the services of an experienced divorce attorney. This
is not something you should do on your own.
If you would like to consult with one of our experienced attorneys in regards
to a pending divorce and related business valuation, please call
OWENS & PERKINS at480.994.8824 to schedule a free 30 minute consultation.