Your Guide Through Challenging Times

Should you use market-based valuation for your business?

On Behalf of | Apr 18, 2022 | Firm News |

Launching a small business is one of the more effective ways to achieve personal and professional success. After all, not only does your venture allow you to be your own boss, but others consider you a community leader.

According to the Small Business Administration, there are almost 32 million small business owners in the U.S. Many of these, of course, have spouses that either co-own their companies or help with day0to-day operations.

Your spouse’s ownership interest

California is among the minority of states that considers marital property to be community property. Consequently, if you started your business during your marriage, your spouse may have an equal ownership interest in it. The same is probably true if you have used marital assets to support your venture.

Your upcoming divorce

Now that you have decided to end your marriage, you must address your spouse’s ownership interest. You probably have some options, though. For example, you may be able to buy out your spouse’s interest using cash or other assets. Alternatively, you may be able to continue to jointly own the company.

Market-based valuation

Your first step is to determine how much your business is worth. While there are other valuation models that may make more sense, many small business owners use market-based valuation. With this straightforward method, you determine how much your company is likely to bring on the open market.

This valuation method is popular, as you may be able to value your business simply by looking at recent sales data for comparable businesses. Ultimately, though, if your company is unique or in a remote area, the market-based valuation may not give you enough information to make a realistic valuation.