3 common methods of business valuation

On Behalf of | Mar 17, 2021 | Property Division

It is not uncommon for a couple to spend years growing financial assets and future stability. When divorce becomes a reality, however, these assets must be carefully examined and divided into an equitable split. Some assets require a complex process called “valuation” to thoroughly understand their worth.

If the couple has worked together during the marriage to create and grow a business, they might find it challenging to negotiate an equitable split. Typically, the first step in these negotiations is to reach an accepted value of the business. This valuation can be measured in numerous ways, including:

  • Comparable company analysis: While many people think of “comps” in terms of real estate transactions, the concept carries over to business analysis. Investigators look at businesses with comparable size and scope to the divorcing couple’s business to gain a clear picture about the value of the current organization.
  • Precedent transactions: Similar to a comparable analysis, this form of relative valuation compares businesses that have recently sold or were acquired in the same industry. Businesses of similar size and scope can be valued accordingly.
  • Discounted cash flow: A discounted cash flow or DCF analysis is a valuation approach that focuses on forecasting the company’s future cash flow and discounts it to present-day values.

The divorcing couple will often compare the results of multiple valuations to reach an acceptable number. With an accurate valuation, the couple can decide to sell the business and split the profits, one party buys out the other, or they continue to run the business as co-owners. No matter what the decision, it is wise to have an experienced family law attorney providing guidance and representation along the way.

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