A Claremont business valuation lawyer is commonly used when a business is included in a divorce action. The attorney works closely with financial advisers, forensic accountants, CPAs, business valuators, and other industry experts to value a business accurately for property division between the parties.
If you and your spouse own a business together, but you are divorcing, you do need a business valuation. Because California recognizes two types of property (community and separate), the courts will need to know how much your business is worth to ensure equitable distribution of your assets and debts.
In order to value a business, evaluators follow specific processes. Just as there are various business models for operating a business, several methods may be used for valuing businesses.
The methods for valuing businesses in California vary, but the end result is generally the same.
The discounted cash flow analysis is an equation used to discount the total of the future cash flows for the business to arrive at a present day value for the business.
In other words, you adjust the amount of money you believe the business will generate in the future to reflect what the worth of that cash flow would be in “today’s dollar.”
However, a difficult element of this business valuation method lies in the assumptions of future cash flow for the business. Several factors must be considered by financial analysists calculating future cash flows such as the sales growth for the business and future profit margins.
The multiples method of valuing a business uses various multiples to value the business. Common multiples used in this method include earnings multiples, price-to-earning multiples, and EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) multiples.
Market valuation is considered one of the most reliable methods of valuing a business because it relies on actual market transactions to determine the value of the business. For that reason, it’s one of the most common methods used.
Market comparison uses valuation multiples to compare the business to be valued to similar businesses that have recently sold. Valuation multiples from comparable sales used to calculate the business’s value include net income, cash flow, EBITDA, total assets, and recent revenues.
To use the comparable transactions method for valuing a business, evaluators search for past market transactions that are similar to the current market transaction.
In other words, the evaluator is searching for a business that has been sold that is similar to the business being valued.
One difficulty with using the comparable transactions method is finding similar businesses that have been recently sold for comparison. Sometimes market conditions and changes within various industries can significantly affect the current value of a similar business to one that has been sold in the past.
In order to ensure a fair property division settlement, it is essential that you value your business correctly.
You don’t need to plan to sell your business as part of the divorce.
It’s a good idea to have an accurate business valuation for several reasons, such as establishing tax obligations, to obtain funding, resolving shareholder or partner disputes, and for litigation purposes.
When a couple divorces, an accurate business value must be calculated to determine the equitable distribution of assets between the parties.
The method of valuation used can greatly influence the property division; therefore, it is advisable to retain a business appraiser to value the business and provide expert testimony as to the value of the business. In many divorce cases, the court prefers to use a valuation method that calculates the “fair market value” of the business.
If you and your spouse own a business together and you are divorcing, you may find it helpful to talk to a Claremont business valuation lawyer as soon as possible. Your attorney can help ensure that the business is accurately valued so that your property division goes smoothly.
Call us at 909-466-7661 or contact us online for complimentary initial consultation. We will be able to provide you with case-specific legal advice so you can make the right decisions for your future.