Business valuation is the process of determining how much an owner’s interest is worth in a business with a focus on the economic value of that share. An attorney or financial advisor will use various techniques to determine the appropriate value of a person’s share in a business. Business valuation procedures can be used to estimate a selling price, resolve issues of estate planning and taxation, determine value for divorce litigation, and other financial issues.
If you own or have shares in a company, discuss your situation with an Upland business valuation lawyer to determine your position’s value and protect your future investments.
How Is a Business Divided Between Parties in Upland, CA?
During a California divorce, businesses can be considered community or separate properties, depending on the details. If your business is separate property, this will make the settlement process far easier. Your business could be deemed separate property if it was created prior to your marriage and your ex-spouse was never involved in an official or financial capacity. Alternatively, many businesses will be considered community property by the court. Even businesses that aren’t community property could still involve a community component, which will need to be addressed and divided during settlement proceedings.
Remember that just because a business was acquired by one partner before the marriage, this doesn’t mean that the business is automatically separate property. Other factors will need to be assessed, such as whether the non-owner party has invested any money into the property.
As soon as community property is involved, a professional business valuation becomes a necessity. In most cases, one party will need to purchase their ex-spouse’s interest to retain control over the business. To do so, the party will need to understand exactly how much the property is worth. This ensures that they pay only what is fair to gain full ownership of the business.
How Is a Business Valuation Calculated?
Because businesses come in many forms and structures, the valuation process can vary. Your Upland business valuation attorney will be able to figure out the appropriate approach to the valuation based on the specifics of your business and divorce case. To determine the overall value of your business, your attorney may calculate the following:
- Fair Market Value
Fair market value is what the business would (theoretically) sell for if it was placed on an open market now, in a similar way to how you would value a house or a car.
- Investment Value
Investment value refers to what an investor would spend to purchase your business if they wanted to earn a return on their investment.
- Asset Value
Asset value includes the value of all assets, calculated without the inclusion of goodwill. “Goodwill” describes your business property’s ability to take in superior earnings, which can be due to its location, reputation, number of years in business, the product it sells, or another factor that sets it apart from competitors. Most commonly, goodwill is accounted for when determining the value of a medical practice or law firm.
Business Valuation Services During Divorce
High net worth divorces can come with a variety of unique and complex concerns, including shared business assets. When this is the case, it isn’t uncommon for the business entity to become the most complicated (and possibly contentious) factor of the settlement agreement.
If you want to truly protect your interests, you should never go blindly into the business valuation or property division process. Your business must be accurately valued to ensure you can reach a fair final settlement in your high net worth divorce. You will need to determine both the current and future value with the utmost accuracy, taking numerous variables into account. This process can be extremely challenging, so it’s crucial to hire representation from an experienced Upland business valuation attorney to reach the correct value. Your lawyer will examine your business from all angles and use their skills to determine its true worth.
Are you currently involved in a divorce involving high net worth? If a business property plays a role in the settlement agreement, consider contacting an Upland business valuation attorney to assist you. The Law Office of Stephanie Squires has the knowledge, experience, and resources to determine the value of your business and ensure it is fairly divided in your divorce.
Determining Assets and Liabilities
Before you can calculate the true value of your business, your Upland business valuation attorney must determine its assets. An “asset” describes anything that is owned by your business. However, it isn’t necessarily that straightforward. In the case of a business, you will be faced with both tangible and intangible assets. Tangible assets are easier to determine, and they can include items like electronic equipment, company vehicles, inventory, furniture, and more. The court will generally only need to determine the fair market value and possibly account for depreciation to value these assets.
On the opposite side of the coin, intangible assets are often extremely difficult to determine and value if you don’t have any prior experience. Potential intangible assets include trademarks, patents, client lists, and more. These aren’t physical items with a clear market value, but they are essential to accurately determining how much your business is worth. As with any other assets involved in your business, it is possible to designate intangible assets as either community or separate property.
However, business valuation isn’t solely about determining the value of your assets. To reach the most accurate value, you will also need to address any business liabilities. Liabilities are any variables that could cost the business money and serve to reduce the total value of the business if they’re accounted for.
Common examples of liabilities are:
- Credit Card Debt
- Service Contracts
Calculating Business Income and Profits
A simple method to begin calculating your business’s profits is by taking its income and then subtracting any business expenses. Business expenses can vary, although they might include:
- The cost of performing any services sold by the business
- The cost of production or manufacturing
- Any business overhead, such as inventory and mortgage or rent payments
Income is simply the amount of money your business takes in, whether it’s due to sales or any other variables, such as equipment or investments. By subtracting your total expenses from your total income, you’ll be able to calculate the net income, also known as profits.
As simple as that may seem, determining profits is fairly complex. It isn’t a one-size-fits-all process, and there is more than one way to calculate profits, but this information is key for determining the true value of your business property in its entirety. If you hire an Upland business valuation attorney, you can receive an accurate calculation of your business’s profits.
Why You Should Hire a Business Valuation Attorney
During the property division process, most assets will be relatively straightforward when it comes to determining their value. However, determining the accurate value of a business is typically a far more complicated process, with considerably more variables to account for.
For instance, goodwill (where your business’s superior earnings are coming from) will typically need to be addressed to accurately value a business. Goodwill is unique in that it is an intangible asset – you aren’t simply calculating the value of the tangible objects that compose your business, where the sum of those values would be the true valuation of your property.
Further, in some contentious divorce cases, the spouse tasked with operating the business might attempt to hide important profit information from the other party to manipulate the outcome of property division. For example, if a downturn has occurred, they could exaggerate its severity and its impact on profits. If you lack business valuation experience, then it’s easy not to recognize these kinds of tactics. You could accept a share that’s less than what you’re fairly owed without even realizing that you should be receiving more.
If you are the spouse that operates the business, an Upland business valuation attorney can be helpful by ensuring that the other party doesn’t receive an unreasonably large settlement. Your ex-spouse might not accurately understand the business’s true value, which could lead them to demand more than they are legally owed in the divorce.
To receive a fair share of the business, you will need to hire a business valuation attorney regardless of your level of involvement or ownership.
Upland, CA Business Valuation Services by The Law Office of Stephanie J. Squires
If your California divorce involves a business or other high net worth assets, you should work with a legal professional who can accurately value and help divide that property. To achieve a fair determination, an accurate valuation is a necessity. However, calculating the total value of a business is complex, so you should not attempt to do so without legal assistance from an Upland business valuation attorney.
Consider turning to the divorce services of Stephanie Squires for legal representation. For over twenty years, she has helped clients navigate their divorces with respect, compassion, and empathy, working directly with them to understand their unique situation and guide them through every stage of the process. She can protect your rights, conduct negotiations with your spouse, and resolve even the trickiest issues. You can get in touch with Stephanie via her online contact form to schedule a consultation about your case.