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Business Valuation by Sean O’Reilly |
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Written by Sean O'Reilly
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Often times in a divorce situation, one or both spouses own a business or an interest in a privately-held business. This business is often the primary source of income for the couple as well as the most significant marital asset when it comes time for equitable distribution. Given the impact that the business can have on equitable distribution, as well as alimony and child support, it only makes sense to hire a professional experienced in business valuations, determination of income available for alimony/child support, and examining the tax consequences of structured settlements.
There are many obstacles that can get in the way of a smooth business transaction, perhaps the biggest being the differing views on what the business is actually worth. The same obstacle tends to arise in divorce situations, when husband and wife have differing views on what the business is worth, and this can often turn the negotiations into a stalemate.
It is often said that business valuation is a combination of science and art. The science part deals with the ability to analyze historical financial statements or tax returns for the business and compare the company’s financial performance to industry levels. The business appraiser must also be able to take the historical data, or perhaps financial projections for a company, and convert that data into a value for the business. The art of business valuations is where the years of experience come into play and justifies the hiring of a qualified business appraiser. This experience allows the appraiser to analyze the historical performance and ask the critical questions which will help them understand what factors are driving increases/decreases in revenue, improvements/deterioration in profit margins, and how these factors might influence the future prospects of a business. The seasoned business appraiser is also able to gauge the market’s perception of similar companies operating in the same industry and impacted by the same market forces, and convert these perceptions into value.
This combination of science and art allows the qualified business appraiser to avoid the stalemate that often arises in divorce proceedings. The qualified business appraiser can look beyond the fact that the better part of a lifetime, and sometimes several generations, may have been devoted to growing the business to its current status, and instead focus on the true “fair market value” of the business. The qualified business appraiser can determine reasonable compensation and “perks” for the business owner based on market salaries for similar positions, not just because it is what the business owner feels they deserve. The qualified business appraiser can examine the totality of the facts and arrive at a reasonable value that is fair to both parties and far less time consuming and expensive than a protracted battle via the court system. |
