What goes into a business valuation?

When business owners get divorced in Florida, a valuation is often an important part of the process. Even if only one person is technically a company’s owner, a valuation may be necessary to determine how to divide assets. Regardless of whether spouses are also business partners, a valuation may be crucial to the fair outcome of property division negotiations or litigation, as a portion of the business – at minimum – is likely to be classified as marital property.

Due to the stakes of the situation, both individuals may wonder exactly how to determine the value of their business. According to the Harvard Business School, there are a few different ways to determine the value of a company during the divorce process.

The book value

The first option is to look at the book value of the business. This can be determined by comparing assets and liabilities. When you subtract the value of the business’s liabilities from the total of all of the tangible assets that it owns, then you get the remaining value of this business. However, there are those who claim that this approach is unreliable due to its oversimplicity.

The market value

If the company is publicly traded, then the market value may be used. Each share has a certain value and there are a certain amount of shares that are owned. Multiplying these two totals together gives the full value of the company if all shares were owned by one person. The problem with this is that many businesses are not publicly traded, so there aren’t any shares to consider. If it is a small family-owned business, this method will not work.

A growing company

Finally, many companies are growing, and there’s an equation that can be used to determine projected future growth for these businesses. But one issue with this approach is that people may disagree on whether or not the business is going to continue growing in value or if the concrete current value should be used.

Working through the process

These are just a few examples of different ways that a business valuation could be completed and financial factors that should be considered as a couple’s property division process evolves. Business owners who are going through a divorce need to know exactly what legal steps to take to safeguard their interests accordingly, so seeking legal guidance proactively in this regard is wise.

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