In order to assess the value of a marital business or professional practice for proper consideration by a trial court in a trial, a business valuation is almost always called necessary; there are very advanced tools to assist in determining the value of a business that is utilized by business valuators. Knowing the best litigant is one who is informed, this blog covers three central parts of a business valuation; these individual components may have value outside the business itself, for either party:
Market Value. The market value of the business is the bottom line of an evaluation and is based on a variety of data, such as annual revenue, debt-ratio, and comparables. This is generally based on a ready, willing, and able buyer and seller. It is not a “fire sale” price. While this valuation may seem almost impossible, financial institutions value business every day; and the potential higher value of the business, the more complete the valuation should be. A proper business valuation may require a variety of other legal tools, from obtaining bank statements (third-party discovery) to a forensic accounting, particularly if it appears money is being diverted from the business.
Goodwill. Goodwill is an intangible part of a business and may be of significant value. What constitutes the businesses’ goodwill is itself sometimes hard to fully understand and may range from its name and reputation in the community to the person, personality and skill-set of the owner. Generally, the more detached goodwill is from a specific person, the more valuable goodwill will be.
Sweat Equity. In cases where the business appears to be largely tethered to the a single spouse, the other spouse has often done a great deal of behind-the-scenes work, from janitorial to mailing out flyers to covering a position for a sick or injured employee. These acts allowed the business to succeed to a greater or lesser degree. Thus, there are always ways skilled lawyers can work to overcome what appears to a business without much value, at least outside the spouse who runs it.
This blog post is written by attorneys at Ciyou & Dixon, P.C. who handle divorces involving family business to professional practices throughout the state. This blog is not intended to be specific legal advice, nor a request for services. It is an advertisement.