Small business owners who divorce face challenges that other divorcing spouses may not. In addition to settling typical matters of custody, spousal support and marital property division, these business owners also have to determine the fate of their companies in the divorce.
It can be quite anxiety-producing to contemplate losing half or even a portion of the company into which you poured your time, attention and funds in order to make it flourish. Indeed, sometimes an owner’s uncompromising work ethic can unintentionally contribute to a divorce if the spouse feels neglected or unappreciated as a result.
When the fate of your business hangs in the balance, it’s imperative that you protect your interests by obtaining an accurate valuation of your company. Here’s how to do that.
Valuations can be subjective
Valuating a business is not the same as assessing more straightforward marital assets like land, property or autos. According to one author and finance professor at Drexel University, business valuations are “both quantitative and subjective.” There can be intrinsic quality enhancements that the owner lends to the company’s value that also have to be weighed when determining its worth.
The following tips may be helpful to business owners facing a divorce.
Choose your valuator carefully
Involve the right people. If your business is an upscale cafe, you would not retain the services of a consultant who works in the field of industrial marble valuation — and vice versa. To pin down an accurate value on your business, the valuator must be intimately familiar with its industry.
Consider brand advantage
Are you the only small animal veterinarian in a 40-mile radius or do you own one of three dozen convenience stores scattered all around your town? Those with no close competitors may have an enhanced value in comparison with those business owners with many competitors located nearby.
Think about the value your business brings to the community and what distinguishes it from the rest. That could increase your company’s worth.
Evaluate growth potential
Most business valuations will include a forecast of five years, which allows for the growth of your company. As such, it is often market-dependent to a great degree.
Is your business on the upswing?
Certain industries are poised to take off in the next few years while others are on a downward slope. These trends matter greatly when valuating a business.
Factor in the negatives
In a divorce, sometimes you want to minimize a company’s value to achieve a better settlement. For instance, if you have a stellar reputation as the best colorist in the area and are the owner of the hair salon, your salon’s value could drop dramatically when it is sold.
Your business may also lack liquidity or otherwise not be marketable, which can lower its value significantly.
Working closely with your Morristown business valuation attorney during the divorce process may help you achieve the most favorable results in your settlement.