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Four Mistakes to Avoid During Your Business Valuation for Divorce

Posted on in High Asset Divorce

Four Mistakes to Avoid During Your Business Valuation for DivorceIt is vital to conduct an accurate valuation of your business during your divorce. The value that you and your spouse agree on will determine how much it will cost you in other marital assets to have sole possession of your business following a divorce. If you overvalue your business, you may give up too many assets to keep your business intact. While undervaluing your business could be advantageous, you risk the divorce court rejecting your agreement if it objects to your valuation methods. There are several ways that someone can make a mistake in the business valuation process that will skew the value of the business:

  1. Using the Wrong Valuation Method: There are generally three methods of valuing a business: income-based, asset-based, and market value. The accuracy of each method may depend on the type of business you are valuing. For instance, the market value approach is not considered to be an accurate way to value a privately held company if you are comparing it to publicly traded companies.
  2. Overlooking Assets and Liabilities: The asset-based valuation approach should include all of your business’ assets and liabilities. Some assets and liabilities can be easy to overlook because they are not tangible properties or part of your regular balance sheet. For instance, your business may have long-term debts that are not listed in your budget or goodwill value that only exists because of your reputation.
  3. Not Considering Risk in Growth Projections: Another part of the value of your business is how much it is expected to grow in size and profits. Your business plan may project a certain amount of growth in the coming years but also considers risks that may hamper growth. A business valuation that does not consider risk may overvalue your business by projecting unrealistic growth.
  4. Giving Too Much Weight to Outlier Events: Situations arise that may change your business’s value in ways that you do not expect to continue. We are currently going through a big outlier event because of the coronavirus outbreak. Many businesses have been forced to close, while others are seeing an increased demand for their products. Once the economy fully reopens and consumers return to their normal spending habits, your business’s value may also revert back to normal.

Contact a St. Charles, Illinois, Divorce Lawyer

Valuing your business is not something you should attempt to do on your own because of the many ways that you can make mistakes. A Kane County divorce lawyer at Goostree Law Group works with professionals who regularly assess the value of businesses for the purpose of divorce. To schedule a free consultation, call 630-584-4800.

Source:

https://www.cbiz.com/insights-resources/details/articleid/7415/10-common-mistakes-in-business-valuation-and-how-to-avoid-them

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