Business Valuation

When determining the value of a company, another factor to take into account is the company’s good will. In general, a company’s good will is believed to be the worth it possesses in addition to its assets. This value is comprised of the company’s reputation and name recognition. However, it is essential that your divorce attorney has the expertise to argue whether some or all of the value of the business good will pertains to “Personal Goodwill” or “Professional Goodwill.” “Personal Goodwill” is typically worthless apart from the person or professional, and “Professional Goodwill” is considered to be their separate property so to speak because it can’t be separated from the person. “Professional Goodwill,” on the other hand, can be separated from the person. For instance, a lawyer, doctor, or accountant’s personal goodwill is often credited to that individual, and it cannot be bestowed on the business unless that individual continues working for the firm. If that people stops working for the business, the personal goodwill would be lost. On the other hand, the brand recognition and reputation of the company are usually regarded to be Community Property and can be a consideration in determining how much the Marital Estate is worth.

To find out more about how our seasoned business divorce attorneys in Fort Bend, Harris, Brazoria, Waller and surrounding counties can assist business owners going through a divorce contact us at (281) 528-2400 for a free case evaluation to determine your strategy.

The Valuation Approaches

The Asset Valuation

This is the standard method that is used to determine the worth of a firm and is frequently referred to as the “cost approach.” In this approach, the worth of the firm is determined by deducting all of its obligations from the total value of its assets. In this approach, the value of each asset and obligation held by the firm is determined, which, in turn, leads to the determination of the overall worth of the company. To estimate the worth of a company, many people consider this approach to be the most rational and sensible one. Using the asset approach as one source in conjunction with one of the other valuation approaches is likely to produce the most accurate value for the firm. This is because the asset approach takes into account the company’s physical assets.

The Market Valuation

The Market Approach to establishing the worth of a business is somewhat comparable to the process of estimating the value of a property by comparing the prices at which similar properties have recently sold in the same area. When determining a value using this approach, the evaluator will look at the sales of other firms that are comparable in type to the one being evaluated by the business owner. However, if there are more than a few transactions to contrast, this might become troublesome. On top of that, some specialized small firms may not have something comparable to utilize as a standard for comparison.

The Income Valuation

The income valuation approach pertains to  the cashflow and profit of a company. This is often achieved using either the capitalization of earnings approach or the discounted cash flow method. 

Earnings Reinvestment and Capitalization. A value is determined using this method by dividing the economic advantages obtained from a firm over a period of time by a capitalization rate. The rate of capitalization is established on the basis of a rate of return on an investment that an investor would anticipate receiving from that investment after taking into account the level of risk associated with that investment.

The value is calculated using the discounted cash flow approach, which involves applying a discount rate to a number of predicted economic advantages in the future.

Similar to the concept of the capitalization rate, the discount rate represents the rate of return that an investor considers acceptable for an investment in a company.

When it is anticipated that a company’s rate of income growth may shift over time, financial analysts turn to the discounted cash flow approach.

These estimates, as you can see, call for a variety of assumptions and forecasts, and it’s highly usual for two different experts to arrive at vastly different values for the same organization.

Nick Davis Law’s experienced business owner divorce attorneys can assist you in preparing your case for a favorable outcome in any divorce proceeding that involves a business entity in Fort Bend County, Harris County, Grimes County, Waller County, Brazoria County, Brazos County, or Washington County and the surrounding counties.

Contact Nick Davis Law at (281)  528-2400 to speak with one of our seasoned Business Owner Divorce Lawyers serving Fort Bend | Harris Counties in Katy Texas.