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3 common business valuation methods

Determining the value of a closely held business for property division purposes is a complex undertaking. It’s important that you work with an attorney who has experience in business valuations. It might be necessary to bring in other experts, such as accountants, to help get an accurate idea of a business’s worth. While several different approaches may be taken when it comes to business valuation, here are three common methods that may be used to help reach a fair value determination.

1. Asset-based

This is the most straightforward approach to business valuation. In essence, a business’s value is determined by taking the sum of the business’s assets minus any liabilities. A comprehensive valuation needs to consider both tangible assets, such as inventory, and intangible assets, such as trademarks.

When it comes to business valuation, simple isn’t always the best. An asset-based valuation fails to account for other intangibles, such as goodwill, which can be a valuable component of any business.

2. Market-based

This approach looks at the sale of similar businesses in the marketplace to help determine the value. The main issue with this type of valuation method is that an apples-to-apples comparison is pretty much impossible. Every business is unique in its way. This approach provides more of an approximate value rather than an exact amount.

3. Income-based

This method involves an evaluator determining the income of a company. The evaluator will normalize business costs, such as salaries and expenses. A capitalization rate will then be applied to the business’s earnings to determine a valuation figure. The drawback of this approach is that it relies on assumptions about the performance of the company in the future.

It’s important to keep in mind the other impacts divorce can have on a business. You should consider what your divorce proceeding may mean to the day-to-day operations of your company. You should also think about the possible impact on your business partners and employees.

Given the complexities of business valuation, it’s important that you work with a skilled legal professional who can help you achieve a fair and equitable property division.