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.