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How useful is market-based business valuation?

On Behalf of | Aug 6, 2022 | High Asset Divorce |

If you are going through a divorce, you are likely to experience things you thought you would not have to address for years. One of them is valuing your business. After all, your business may be a marital asset that is subject to California’s community property laws.

Before you can tackle the future ownership of your business venture, you need to know how much it is worth. Indeed, knowing the value of your business puts you in a better position to negotiate the divorce settlement you deserve.

What is market-based business valuation?

According to the Corporate Finance Institute, market-based valuation determines the worth of your business according to what it is likely to fetch on the open market. This valuation method is popular with those who are going through divorce proceedings, as it is often much quicker than other forms of business valuation.

How do you calculate market-based value?

To calculate the market value of your business, you simply look for other comparable business sales in your area. Because sales data is comparatively easy to find, you can determine the value of your venture without taking a deep dive into its books or future earning potential.

How can market-based valuation cause problems?

Market-based valuation does not work well when there are not many comparable business sales. If you operate in a remote area or have a one-of-a-kind business model, you may not find enough on-point information to make a realistic estimate.

Ultimately, if you have the time, you may want to use both market-based valuation and other valuation methods to try to find the valuation that is most favorable to you.