How to Value a Business During a Divorce

value a business

In the unhappy circumstances of a divorce, things can get even more complex if there is a joint business involved. Learn more about the ins and outs of how to value a business during divorce proceedings.

Given that 90% of all small businesses in the US are family-owned, it’s not hard to imagine that lots of families have to deal with the trouble of a divorce. Divorce, when the business is involved, makes everything complicated for everyone. If you’re wondering how to value a business following a divorce, you’re going to have to use some finessing.

Here are 8 of the most important tips you need to know for keeping your business running after a divorce.

1. Make a Count of Everything

In order to get a full assessment of how much your business is worth, you’ll need to make a count of every item that your business owns. This could be a tedious task, but it’s necessary to start putting a figure on your business.

You’ll have to count everything from office furniture to computers to supplies. If you’re in the retail market, this could become more complicated. You’ll have inventory coming in and going out so you might have to come up with an average.

Think about whether or not you have anything else of value beyond your day to day office costs.

If you own property somewhere else, you should add that in as one of your assets. For companies that are in the mining, energy, or trucking industry, you’ll have assets dispersed all over the world. Be sure that you give a value using a consistent currency and account for wear and tear on anything that could wear down over time.

2. Assess Past Business and Accounts

When assessing the value of the business, you need to come up with a dollar amount to measure what the value is not just today, but over time. If you’ve got a regular account with a large corporation, you need to come up with an average amount that predicts how much they make you every year.

Because businesses can have ups and downs year after year, you might find yourself needing to calculate an average to get the worth of your business. You will be calculating the worth of your business by assessing how many years it will make this figure for.

Your past business may or may not be a factor when you’re calculating the worth of your business. You’ll have to determine that figure does or does not represent the history of your business. There could be major personnel changes or industry factors that contributed to changes to the worth of your business.

3. Predict the Worth of Staff

Depending on the industry you’re in, your staff could be part of the cost. If you’ve got staff with contracts that are meant to last for another few years, you might not be able to sell the business without keeping them employed. While they may not have to be “employed” they will be getting paid, regardless of whether the doors are open or not.

If you have a law firm or a medical practice, much of your worth could be tied up in your staff.
The people who you work with, your partners, or the doctors you employ could be what makes your company valuable.

The worth of your business could be hard to calculate without considering the strength of your human resources. The people who bring in clients are going to be valuable and worth calculating into the price of your half of the business.

If anyone wants to buy the other person out, the people who work for you might not have much of a say. Be sure that everyone is on board before you sell the business. You could be making a huge mistake if everyone leaves following the sale.

If some of your staff is made up of family members, you’ll need to click here to discover more about what you should do to resolve those tensions.

4. How Much You’ll Make in the Future

As stated before, the value of your business isn’t just what it brought in today or in the past year.
Understanding that the person who gets the business will receive that annual value year after year, you need your calculation to considers that. A business bought or sold should continue to retain and even increase value over time.

Understanding how much you could make in the future is tantamount to knowing the value of your business. This will take into account the trends in the market, how much growth your region is seeing, and whether or not a larger company could buy you out.

If you sabotage the value of your company by doing something reckless now, you could face a lawsuit, along with the loss of value in your company. Despite the frustration of going through a divorce, try to be civil and ensure that you face the future of your company with grace.

5. Compare to Offers

If your company has been offered a buyout in recent years, you should consider this when coming up with a value for your business. While it may not be a great way to measure how much you’re worth today, it allows you to get a glimpse of what it could be worth. Your value will surely change over time but know a ballpark is important.

Talk to friends and colleagues in the industry to see what they’ve sold for recently. They’ll let you know how much your business could be worth. While competitors will look at this loss in worth as an opportunity to take advantage of you, friends and non competitors will be more honest with you.

If you’ve currently got an offer on the table, you might want to allow the process to play out before the divorce. Once people find out the owners of the business are getting a divorce, they lose faith in the business.

For some people, their business is their life’s work. It’s more than a job. It’s a passion turned into a profitable business.

6. Current Legal Issues or Patents Pending

When you’re calculating the worth of your business, you need to think not only about what you have but what you could lose. There are potential issues, lawsuits, or pending patents that haven’t cleared that could end up leaving you high and dry.

If you’ve found people in your company have been caught up in the wave of assault charges that have been happening, they could be a liability. If you didn’t prepare for this with good enough training, you could also be held accountable.

If there are lawsuits that have to do with any corporate issues, you need to resolve them as soon as possible. Leaving them open will damage the viability of your business.

While you might have a great product out there on the market, if you haven’t secured the patent yet, someone else could beat you to it. If you’re assessing the value of your business after a divorce, none of these things are going to make the process any easier.

7. The Trajectory of the Industry

Understanding the trajectory of your industry has been alluded to above. It’s an essential aspect of assessing how well your business will do in the future. Every industry will go through changes and the value of your business will change relative to this.

If you read trade magazines, you’ll know if your business is going to be affected in the near future.

When the people who manufactured CDs saw everything move toward streaming, they didn’t have a backup plan and many companies folded. Without a viable replacement for the model you’re working with, you’re limiting yourself.

Make sure you’ve always got an exit plan both for you and the future of your company. There are many ways for a company to pivot and providing a few ideas will help to sustain your company for years to come.

8. Public Perception After Divorce

After the owners of a company split, lots of big changes can come. While some changes can be good, the quality of the changes is up to public perception. Unfortunately, following the split of a relationship between owners, there could be changes to your customers’ relationship to your brand.

In order to manage these changes to how people feel about you and your company, you need to get out in front of the press. When perceptions change, it can bring negativity to your brand.

Your job needs to be to figure out how to change the narrative.

Your best bet would be to come up with a brand relaunch concurrent with the divorce. Rather than it being a negative split, you could frame the entire situation as something of a new start.

Knowing How to Value a Business Is a Reliable Skill

If you’ve been wondering how to value a business, you’ll see that it’s fairly straightforward. It will take a lot of searching through old files but it will be worthwhile in the end. Once your business has been sold, you can happily move on with your life and pursue new things!

For more management tips to increase the value of your business, check out our guide here.

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