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A picture's worth a thousand words: What about your business?

Does it seem like a lifetime ago when you first dreamed of starting your own business in California? Perhaps you filled notebooks full of ideas, and maybe you even designed your own business cards. Years of hard work paid off and now you're looking ahead to the future. Whether you're thinking of retirement, developing a plan of succession for future generations, or facing challenges regarding property division in a divorce, it may be necessary to seek a business valuation before you can accomplish your goals.

To you, your business is no doubt priceless; after all, it was your own blood, sweat and tears that made your company what it is today. How can anyone put a value on that? Surely, however, you can see the logic in having to attach some type of monetary value to your business if a court is going to determine how to divide it as marital property or you are planning to sell it before you retire.

Methods of valuation

Basically, there are several ways to assess a particular business's worth. The following is a short list of the most common valuation methods:

  • Market Value: Have other businesses similar to yours sold in your area lately? The market-based approach assigns a value to one business by analyzing what similar businesses have sold for in the same region in the recent past.
  • Current net balance: In this approach, all your cash on hand and immediate business assets would be added up, then all your current liabilities subtracted from that total, leaving you with the final amount of current net worth.
  • Liquidated asset worth: This amount is figured by determining an estimated total that would exist if all assets were sold and all liabilities satisfied.
  • Potential earning value: A business value can also be determined by using either past average earnings or estimated future earnings to calculate what a buyer can reasonably expect to earn on a particular investment.

There are pros and cons to each method. For instance, it can be difficult to use the asset-based approach in a sole proprietorship because differentiating business assets and personal assets can be complicated. Sole proprietor businesses also tend to be unique, so finding similar businesses by which to compare market values can be quite challenging. If you happen to be going through a divorce, and your spouse has hired someone to seek a business valuation, you may want to do the same in order to have a second opinion.

You didn't come all this way to be shortchanged in reaping the financial benefits of the business you worked so hard to make successful. If a problem arises, it often helps to have someone on your side with clear understanding of business and commercial law, as well as the ability to aggressively litigate an issue if needed. Many others in California have relied on experienced business attorneys to protect their interests and achieve favorable outcomes in similar business matters in court.

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