What makes private business valuation a complex matter?

Now that you face divorce as the owner of a profitable business, one of your first steps is to assess the fair market value of your company. If your spouse has an ownership stake in the business, having a business value is a must to determine what your spouse should receive as part of the settlement.

Assigning a value to your business may not be a simple matter. The American Bar Association describes reasons why your upcoming business valuation may prove a challenge.

Private companies do not have public stock

It is not difficult to place a value on a publicly owned business because you can determine the worth of its ownership shares. It is a different story if you privately own a business by yourself or with one or more partners. Since your company does not trade stock on a public exchange, you have to measure the value of your company through other means.

There are multiple ways to value a business

There is no set way to assess the fair market value of a business. Usually, business owners will choose from three methods, a market approach, an income approach and an asset approach. If you know your business has substantial value, you will likely need a financial expert such as a Certified Public Accountant to help you assess your company.

Spouses may not agree on valuation

The multiple options for assessing your business presents another problem: You and your spouse might not concur on which valuation method to use. You could fight it out in court and leave it up to a judge to choose the method. This kind of battle can take up a lot of time and expense. You might explore mediation as an alternative option to help you come up with a compromise you and your spouse can live with.