Business Valuation

FAMILY LAW LAWYERS DEDICATED TO SERVING RESIDENTS OF ATLANTA

Closely held businesses, whether sole proprietorships, partnerships, or corporations, can range from mobile taco stands to multi-national conglomerates. Usually, as long as a business is generating a reasonable profit, the owner or owners are not preoccupied with valuation. However, business valuation can become critical when an owner becomes involved in a divorce. A couple sometimes may need to sell a business, particularly if both spouses participate in the business and do not foresee a way to continue working together. In most cases, however, business valuation arises when determining the division of assets. If you need assistance with a family law matter of this complexity, the Atlanta attorneys at Rowsey & Stelter can help. We proudly serve residents of communities such as Sandy Springs, Johns Creek, and Alpharetta, among other areas.

METHODS OF BUSINESS VALUATION

People who own businesses often do not have a clear idea of the market value of their businesses, even if they are deeply involved in the financial aspects of its operation. Owners may have an incentive to undervalue it when contemplating having to split it with a future ex-spouse, while the future ex-spouse may want the valuation to be high.

There is no one fixed method for determining business valuation. At its most fundamental, it is based on answering one question: what would a buyer be objectively expected to pay to purchase the business from a willing seller? But what sounds simple in theory can be difficult in practice. These are some of the methods applied in determining business valuation:

• Asset valuation: This is often used for asset-intensive businesses, such as a retail store. It is calculated by adding up the value of all business assets, such as land, inventory, office equipment and furniture, and cash holdings, as well as intangible assets like goodwill, employee and client loyalty, or proprietary technology, and then subtracting the business’ liabilities.
• Asset valuation: This is often used for asset-intensive businesses, such as a retail store. It is calculated by adding up the value of all business assets, such as land, inventory, office equipment and furniture, and cash holdings, as well as intangible assets like goodwill, employee and client loyalty, or proprietary technology, and then subtracting the business’ liabilities.
• Earnings multiplier method: Simply stated, this valuation is based on the earning potential of the company, calculated as a ratio of its profitability to the amount of funds invested in its purchase and operation. To determine what would be a reasonable return on investment, the business would be compared with similar businesses.
• Comparison: This method compares the business to similar businesses recently sold. This is essentially the same method that realtors use for valuing houses, which consists of finding “comps,” or recent sales for houses similarly situated. Although businesses vary in more ways than houses, comparisons provides useful market indicators for assessing valuation.

None of these methods—or any other—is conclusive. What works best will depend on the type of business involved as well as other factors, and more than one method can be utilized.

CONSULT AN ATLANTA ATTORNEY WHEN DIVIDING PROPERTY DURING DIVORCE

In determining the division of assets, divorcing couples will frequently argue that one business valuation method is better than another—even when different methods yield widely varying results—in order to obtain the maximum benefit for themselves. They may also dispute the amount of money they have jointly or separately invested in a business when seeking recoupment of those funds, or in determining what would be an “equitable” division of the business asset. Whatever your situation, it is critical to retain an attorney who has experience handling business valuation issues, who has access to qualified appraisers and brokers, and who can effectively substantiate why one method may be superior to another in determining business valuation. For assistance with dividing assets during a divorce in the Atlanta area, contact the lawyers at Rowsey & Stelter at (770) 993-5317, or use our online form to set up a free consultation.