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How Is My Business Valued?

The Collin County Law Group Dec. 12, 2018

As an involved business owner who is going through a divorce, you may be very nervous about what could happen to your company. It is crucial to correctly value your business as you head into the property division process.

What happens during the business valuation phase will determine the monetary value of the enterprise, and impact your settlement. If you need to pay your ex-spouse a portion of the business’s worth in order to keep your company intact. Here is an overview of what factors make up business’s value and why goodwill is so essential.

Work with A Professional

A forensic CPA with business valuation training and experience is the best type of financial professional to accurately value a business for divorce purposes. Below are some common factors that are investigated when a company is valued.

Business valuation encompasses tangibles, such as:

  • Property and facilities

  • Inventory

  • Machinery

  • Earnings and debt obligations

and intangibles such as:

  • Personal and enterprise goodwill

  • The economic forecast for the business industry

  • Financial outlook

The Importance of Goodwill

The distinction between personal and enterprise goodwill is an important one, as enterprise goodwill can be sold, but personal goodwill cannot. Enterprise goodwill is the value that the business itself possesses. Things like client billing amounts, location, years in operation and ratings are some of the aspects of how much goodwill the business entity possesses.

Personal goodwill has to do with the value that the owner brings a business through their professional reputation, expertise and work that they put into the company. In the case of a dental practice, for example, personal goodwill would focus on the dentist’s professional standing, years as a licensed medical professional and reputation for skill.

As an owner actively involved in your business, you should highlight ways in which your personal goodwill makes up as much of the business’ value as possible, as it is a not a marital asset. This can potentially lessen your enterprise goodwill, which in turn may decrease the marital asset amount of your business.