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3 business valuation methods reach vastly different results

On Behalf of | Oct 27, 2020 | Firm News |

Starting and growing a business are the more effective ways to achieve the American dream. If you are going through a divorce, though, your business venture may be part of the marital estate. That is, even if your spouse has had little interest in your company, he or she may have an ownership claim to it. 

Regardless of whether you intend to fight for your business during your divorce, you must know how much the venture is worth. In the divorce context, three business valuation methods are popular. 

1. Income-based valuation

With income-based valuation, you calculate the worth of your company based on how much income it has. This straightforward calculation simply considers expected future value, annual rates of return and current cash flow. 

If your company has little income or operates in the red, this valuation method may be beneficial to you. 

2. Asset-based valuation

Asset-based valuation adds everything your venture owns and subtracts its liabilities. If your business has considerable debt or few assets, this valuation method may give you the outcome you seek. 

3. Market-based valuation

Valuing your business with a market-based approach requires determining how much the venture would likely fetch on the open market. You do not have to sell the business, though. Instead, you can compare recent sales data of comparable businesses. 

Whichever business valuation method you choose is likely to have some effect on your divorce. That is, whether you opt for market-based valuation or one of the other approaches, you are likely to reach vastly different conclusions about how much your company is worth.