Valuation Methods Of Businesses In Divorce
Reaching an equitable financial settlement in a Georgia divorce case can be tricky, especially when one or more of the spouses involved owns and operates a business. How do you place a value on these companies? In order for everything to be split in a fair manner, a monetary amount needs to be placed on them that can then be used for a division of assets. You also need an accurate understanding of the income the business generates in order to calculate child support and even spousal support.
At Buckhead Family Law, we know there are several different options when it comes to choosing a valuation method, all with their own pros and cons.
Hiring a Valuation Expert
The first thing that your divorce lawyer in Georgia will do is hire a valuation expert. These experts work independently as well as for banks, finance companies, and even stock brokerage firms, and are certified to conduct business appraisals such as these. The purpose of a valuation expert is to have a non-involved third party conduct the analysis in order to determine the fair value of the company. Simply asking someone who works for the business won’t work, as they might be biased towards either of the divorcing spouses, further complicating the situation.
In order to conduct the valuation, the expert will need access to certain of the firm’s accounting records, tax returns, and other related information.
Valuing a Business
When it comes to determining the overall value of a business, the business valuation expert may choose to use one of these methods:
This particular approach takes a deep look at the company’s accounting methods. It uses the businesses yearly balance sheets to determine how much it’s worth. In particular, the valuation takes into account two factors: the businesses’ assets and its liabilities. By subtracting the liabilities from the assets, a monetary value is determined.
The assets owned by the business can be everything from its inventory, buildings, and other real estate holdings, to even its equipment, and anything that the company owns. From there, the liabilities, like mortgages and loans, as well as other things are taken into account.
One of the best things about this approach is the fact that it looks at the company’s current assets and losses. This paints a fair picture of its finances and value. However, the asset-based approach doesn’t take into consideration any future gains.
Another option is the income approach. In order to determine the value of a company, the valuation expert will look into a number of factors, all of which attempt to predict what the company may be worth in the future. The main question that the expert tries to answer is “how much income can the company generate in future years?” They then tie the valuation to that number, considering how much the business currently makes, what types of risks are involved with running it, and more.
By predicting what the company may be worth, experts are taking a bit of an educated gamble. They may be spot-on, but run the risk of under or over-valuing the company in the future. However, they understand what the business is currently worth, which is added to their considerations.
The market approach works as well. What have other, similar businesses recently sold for? This is the main question asked by the valuation expert when using the market approach. While some monetary adjustments are made based on things like the difference in number of employees or customers, as well as the general size of the company, these comps allow for a good, estimated valuation.
As expected, the hybrid approach is one that combines any of the previously described options. The expert may use the market approach and the income approach, the income and asset-based approaches, or any of the three all at once to find a well-rounded valuation.
Need a Top-Rated Divorce Lawyer in Georgia to Help with Business Valuations?
Wondering how a divorce settlement can be reached when one or more of the involved spouses own a business? Want to ensure that a fair amount of child support, spousal support, and more is reached? If these are things that worry you, then you need a skilled law firm to represent you in your Georgia divorce case.
At Buckhead Family Law, our legal team works diligently to meet the needs of clients getting divorced in today’s tech driven world – this means taking everything online into consideration. One thing that hasn’t changed about divorce? It is still one of the most harrowing experiences someone can go through, and we understand that. That is why we always treat our clients with grace and compassion.
Need help? We are here to assist you as you begin the next chapter of your life while ensuring that all of the loose ends are tied up in the least complicated way. Schedule a consultation today by calling at 470-600-1403.