5 Things Every Divorce Attorney Should Know About Business Valuation

Divorce Attorneys don’t need to be experts in Business Valuation to help their clients who own a business interest, they just need to remember these five things:

  • A net loss (or minimal profitability) on the P&L does not mean the business has no value; you need to add back non-cash charges (ex. Depreciation); owner perks (excess salary; personal meals and travel, etc) and one-time expenses (roof replacement; sale of assets) to determine the true benefit stream that should be used to value the business. A business that is break-even on the P&L may have significant add-backs which result in substantial business value.
  • Book Value of the assets is almost never the best indication of value for a business. Book Value often does not bear any resemblance to the true market value of the assets, and an operating business usually has value in excess of the value of its assets.
  • Personal Goodwill is not just for doctors and attorneys. Case law and the Family Code support personal goodwill in a variety of businesses as long as certain characteristics are present.  The presence of personal goodwill can dramatically impact the value of the business.
  • Rules of thumb (ex. 3x earnings, 1x revenue) should never be used as the primary indication of value in a Divorce case.
  • Don’t forget the discounts! If the client owns a minority interest (less than 51%) a discount for control is appropriate.  And with most privately owned businesses a discount for marketability is also appropriate.  These discounts can have a significant impact (decrease) on business value.

A short phone call (at no charge) with an experienced Valuation Professional can help you determine whether it makes economic sense to have a business valuation done.  It may seem like an added expense initially, but a good valuation often ends up paying for itself many times over.

Want to learn more?  Visit us at PrecisionValSvcs.com or hear our podcast on Impact Makers Radio here:  http://impactmakersradio.com/scott-abels-certified-public-accountant-cpa-austin-texas/

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