Terenzini & Lucero, LLC
Terenzini & Lucero, LLC

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What are common factors considered in a business valuation?

On Behalf of | Oct 18, 2023 | Divorce |

When a business is one of the marital properties in a high-asset divorce, the stakes become significantly higher. While circumstances vary, spouses often do not have equal contributions to the company. One spouse may be more involved than the other. As such, complex conflicts about the business’ value are inevitable.

A business valuation can help divorcing couples by establishing the overall value of their marital assets and how they can arrive at a fair settlement based on Maryland’s equitable distribution rule.        

Determining a business’ worth

The valuation process may use different methods depending on the business structure. For example, an income approach uses earnings as a measure. Meanwhile, a business with limited financial information can use an asset approach to look at comparable companies.

Upon identifying the relevant method, the valuators often consider the following factors:

  • Does company size matter?
    A large company typically implies a stable economic reach and multiple revenue streams. On the other hand, a small or start-up business often indicates increased risks or susceptibility to turbulent financial scenarios.
  • Are there emerging industry trends or market conditions?
    The business may be part of an industry that keeps up with changes in economic activity, workplace culture and human behavior. Some examples that have drastically changed or reimagined companies, are the global pandemic and technological innovations.
  • Is the business positioned for growth?
    Growth potential shows that the business has plans and strategies in place to expand. The things that give it a competitive edge may shape such potential. For example, a strategic location that generates high foot traffic may be of greater value than a secluded area.

There may be competing valuations when parties work with separate valuation professionals. A spouse hiding critical details may also cause contrasting results. The court may come into the picture when disputes persist due to unreasonable valuations.

Protecting the business’ future

When business and divorce intersect, the question is not so much about whether couples need a valuation but more about when they must push through with it. Even if it is a highly technical process, both parties must still face it to secure the business’ future. They can speak with their legal counsel to strategize and sway the court in their favor.

Terenzini & Lucero, LLC.

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