If you are in the process of a divorce, assigning a value to your business is critically important. That business may be divided evenly between spouses, with one spouse buying out the other’s interest as part of the divorce settlement. Placing a value on a business may involve the assistance of a business broker, a professional the attorneys would agree on when looking to valuate your business.
1. Find a business broker. The attorneys will be tasked with finding a business broker for your enterprise or you and your spouse may find one yourselves. The International Business Brokers Association, Inc is one such place to start, where member professionals are listed in that directory. Ask for references and then call them.
2. Get your books in order. A business broker will evaluate the number things about your enterprise. The type of business you run, the location and your market demographics are important. Your broker, however will be paying much attention to your financial books, including profit and loss statements, accounts payable and receivable, and tax data. It is important that your books are current and accurate at the time the broker reviews same.
3. List your assets. What your business owns is important. A prospective buyer would like to know what assets comprise the business. Does your business own the building and the land or just the building and you are leasing the land? What equipment do you own out right? What is the value of your inventory? This is where the broker will be paying special attention to your business’ balance sheet.
4. Show your stream of income. Income considerations are critical to a business valuation. Here, the broker will examine how much money you make each month and keep. He will examine trends over the past month and year, then compare it with previous years. This method can give you a good idea what can be expected over the coming months and the year ahead.
5. Await the broker’s valuation. Expect that your business broker will have some questions that you and your spouse will need to answer about the business. Those questions will enable him to better assign a value to your business. After that, he may need a few days to place a value on your entity.
6. Review the broker’s valuation. The broker’s valuation will arrive and both parties can choose to either accept it or to reject it. You should know that a business valuation isn’t precise, but it should come close to what the business would fetch if it were sold. It is at this point where you and your attorney may come up with an adjusted valuation to present to the other party. Once an amount is agreed upon, then that valuation becomes a matter of court record explains the Law Offices of James S. Cunha, P.A.
Valuation Considerations
It is important that you work with a business broker who has experience evaluating your kind of business. Ultimately, In a divorce situation, the final valuation is the number that you and your spouse agree upon.