Photo of Professionals at Weinberg, Kaplan & Smith, P.A.
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Micro factors that may affect the value of your family business

On Behalf of | Feb 1, 2021 | Property Division

If you own a New Jersey business, the recent economic turmoil may affect its value and become a point of contention if you are going through a divorce. The financial impact and fluctuation in asset values could require a valuation for equitable distribution purposes.

There are several acceptable ways you can obtain your organization’s value. According to Fundera, the valuation method that works best for your family business depends on several factors.

Family business value

Using EBITDA as the basis for estimating your company’s value may get the valuation started, but micro factors can also affect its worth. They include the following:

  • Profit margins
  • Customer and industry concentration
  • Strength and depth of the management team
  • Revenue Trends
  • Competitive advantages

If you have relatively high gross margins, you likely have competitive advantages, which can increase the valuation. However, if you rely on a few customers for the bulk of your sales, that can negatively impact its worth. In situations where the CEO/Owner has responsibility for several key management functions, that can result in a lower company value, whereas several capable managers could increase it. In the end, valuing your business is as much an art as a science. Understanding which factors are the most critical can help you set realistic expectations.

Options after the valuation

Regardless of whether the valuation uses a market, income or asset-based approach, getting a divorce doesn’t mean you lose the business. If you and your spouse run the company together, you could continue that way. One of you could buy the other out, or you could liquidate, take the cash and walk away. Although a business valuation often causes contention, it is unlikely the only marital asset involved in the divorce settlement. State statutes detail considerations for the equitable division of assets and allow certain flexibility when both parties agree to specific terms.