If you are a business owner who is getting divorced, you will need to conduct a professional valuation of your business. A business is a marital property if you started or purchased it during your marriage. Even if you have owned the business since before you were married, it may have become marital property because you invested personal assets into it. Business valuations are complicated because there are multiple approaches to valuation and several aspects of a business that you must consider when calculating its value. There are three general approaches to business valuation, each with their own strengths:
- Income-Based Approach: The most popular method of business valuation, this approach values a business based on the earnings that it is able to generate. The business appraiser looks at the business’s past earnings and projects the future earnings, based on trends and accounting for risks.
- Asset-Based Approach: The appraiser bases the value of the business on the value of its assets. The appraiser comes to a total by either subtracting the value of the business’s liabilities from the value of its assets or estimating the amount of money the business would receive if it liquidated all of its assets. This approach requires appraising the value of tangible and intangible assets.
- Market Value Approach: Taking an approach that is similar to real estate, the appraiser looks at similar businesses that were recently sold to see what those owners received in their sales. This method relies on being able to find multiple examples of businesses that are strongly comparable to the business being valued.
Challenges for Small Business Owners
The business valuation process may be more complex if you are the owner of a small business. Appraisers must consider the goodwill value of small businesses because some of the business’s value is based on the owner’s reputation and would be lost if the business was sold. The owner may use their personal assets for their business, and the appraiser needs to separate the personal assets from the business assets. For the market value approach, it is more difficult to find sales involving comparable small businesses.
Contact a St. Charles, Illinois, Divorce Lawyer
Determining the value of your business may require a mixture of valuation approaches, depending on the type of business you own. Fortunately, you do not need to worry about searching for an appraiser. A Kane County divorce attorney at Goostree Law Group regularly works with business appraisers and can recommend one for your case. To schedule a free consultation, call 630-584-4800.
Source:
https://www.thebalance.com/business-valuation-methods-2948478