What should I know about business valuation?

On Behalf of | Mar 13, 2021 | Divorce |

If you have spent years building a thriving small business in the state of Connecticut, you may wonder how a divorce could affect or threaten your business. If your spouse has an ownership share in your business, you need to find out your company’s value so that you can buy out your spouse’s share and hold on to your enterprise.

Having a proper valuation is also essential if you and your spouse must sell off the business and split the proceeds. Regardless, there are some things you should understand about business valuation so you can get off to a good start.

There are multiple valuation methods

As The Street explains, there is no set way to determine the value of a business. You might believe that cash flow is the best way to figure out valuable your company is, but there may be other methods that work better depending on the customers you serve and the type of business you own. A business valuation expert may look at any or all of the following:

  • Levels of business debt
  • Value of business assets
  • Future projected earnings
  • Business expenses
  • Business management

Factors like these can contribute to valuation methods like a market comparison, which compares your business to one in the same industry with a similar number of customers and employees.

Be careful about using previous methods

You may have valuated your company on a regular basis by using the fair market value method, which yields an amount a person would pay for your business and its assets. The IRS uses the fair market value method when it comes to determining the value of business assets. However, this may not be the method that your divorce requires, so be careful about reusing previous valuation methods.