If you started your business during your marriage, there is a good chance it is part of the marital estate. Like the other assets you and your spouse own, your business may be subject to equitable distribution during your divorce.
Whether you plan to buy out your spouse’s ownership interest, sell the business or come up with another arrangement, you need to know how much your venture is worth. With both divorcing small business owners and professional appraisers, three valuation methods are popular:
Asset valuation estimates the worth of your business by adding up the value of everything the business owns and subtracting its liabilities. If you go with this approach, you probably need to account for depreciation.
Income valuation approximates the value of your business by projecting its future revenue. This valuation method is often useful for stable ventures that have a history of profits. If your business operates at a loss or has meager earnings, income valuation may not be appropriate.
Market valuation determines the worth of your business by speculating about what it may bring at sale. That is, you review recent sales data for comparable ventures in your area. This approach is not without its challenges, however.
If your company has a one-of-a-kind business model, you may not be able to find comparable sales. The same is true if your venture operates in an isolated area. Nevertheless, if market valuation is not an option, you can likely estimate the potential value of the outfit with one of the other valuation methods.