Divorce is a tricky business and it can be made even more complicated when a family business is involved. There are many ways that this situation can be sorted out, depending on a number of factors, but the most important thing to do is have the business properly valued.
How to Value a Business
Estimates are not good in this situation, so it is important that you have a fair valuation of your business. In order to accurately value a small business for divorce you need to take the approach that best matches your business model. There are three things you need to consider when valuing a small business, these are as follows:
1. Assets– if your business is asset heavy, then working out the cost of your buildings, machines, products, raw materials, etc., will help to create the core value of your business.
2. Cash flow – look at the forecast future of your expected revenues and costs to find a net profit (typically over 5 years) in order to achieve a terminal value. This figure should then take into account the riskiness of your business to bring in the predicted amount, thus giving your business a cash flow figure.
3. Analysis of comparable companies – businesses without assets or enough figures to produce a cash flow prediction can simply use a ‘rule of thumb’ model and find a comparable business that was recently sold and use the value of that transaction as a base model.
Wherever possible, try to utilise all these methods to get the most accurate valuation of your business.
Getting a Valuation
In this type of situation, it is advised that you get an independent valuation or ask an expert to look at the company’s finances. If there are difficulties in achieving an accurate valuation due to the business records, then it is often worth hiring a forensic accountant who will be able to advise you on how the business can be restructured to fund the divorce while ensuring it has a viable future.
Disputing a Valuation
It is common for both parties to have a disagreement regarding the valuation, if this happens then you can go to the court to apply for information from the bank or account directly. Some of the most common reasons for disputing a valuation include:
- Business owner massively undervalues their business
- Ex-partner isn’t being co-operative
- Business being overvalued against real figures
Bear in mind that disputing a valuation can be an expensive process, but it may be the only option in the above situations.
Using a Single Joint Expert
Instead of each party appointing an expert to carry out their own valuation, it makes much more sense for you both to appoint a ‘single joint expert’. Instead of this expert providing either party with their valuation of the business, it will be instead delivered straight to the court.Typically each party will then have their own accountant or lawyer who will give you the questions to ask and help you to get the best result possible from the valuation.
At Howells Solicitors we have a wealth of experience in dealing with tricky divorces and helping people who are valuing a small business – find out how we can help you by calling us on 02920 404014 today.