Anderson & Boback Logo

How Do You Properly Value a Business?

Categorized as Illinois Divorce, Property Division

If one or both parties own a business, and an agreement on its value cannot be reached, a business valuation will usually be ordered. There are many aspects of the business that valuators analyze and clients sometimes do not understand the method to the madness, so to speak. The following is an explanation of the two more common valuation misunderstandings.

* Normalization adjustments: Normalizing the historical earnings is a necessary step in the valuation process. Sometimes, during the most recent year prior to the divorce, an extraordinary or non-recurring expense has hit the business and effected profits. Normalization adjustments are then made to remove extraordinary or non-recurring items (be it income or expense) from the historical earnings. The valuation expert’s role is to adjust historical earnings to represent to a reasonable degree of certainty the economic reality of an ongoing business.

* Motivation of the owner: Many businesses experience cyclical patterns of income, while others follow a continuing growth pattern. The pattern of the business’ profits for many years prior to the divorce are an important indication of future earning potential. However, sometimes during or right before a divorce, profits fall drastically. It could be that the owner is intentionally devaluing his/her business, but it could also be that due to the pending divorce, the business owner’s motivation to sell dropped. The owner may not be spending as much time at work in an attempt to save his marriage or he/she may be experiencing some emotional issues. In either case, a drop in profits immediately preceding the divorce is not always caused by bad faith.

If you do anticipate needing a business valuation, you should retain an expert early. The valuator will need to review many documents and discovery prior to the actual report being furnished may be extensive.

Was this information helpful?

You May Also Like

If you want to be on social media these days, there are many platforms available - Facebook, Instagram, Twitter, Snapchat, Tik Tok, LinkedIn, YouTube – the list goes on. Social media helps people share content, communicate, and just catch up…

Divorce can be ugly, there is no doubt about it.  Furthermore, not everyone plays “fairly” throughout the process. With couples no longer getting along, strained finances, and worries about who gets what, there are definitely some “dirty tricks” that repeatedly…

In a recent Illinois child support modification case, the Illinois Appellate Court reviewed a trial court decision where a father's income increase from $138,000 a year to $2.2 million a year was found to be "no substantial change in circumstance".…

The legal term “best interests” is a concept that comes up in almost all child-related areas of family law. When making essentially any decision on behalf of a child, the court is going to look at what is best for…

Maintenance, formerly known as alimony, is a relief granted to a party in a dissolution of marriage case that equitably restores to the party a standard of living to which they became acclimated during the marriage.  For spouses going through…

Visitation interference occurs when the custodial parent in some way interferes with your ability to spend parenting time with your child or visit with them.  In Illinois, a parent has a couple of options when the other parent interferes with…

Anderson & Boback small logo

Download our Divorce Planning Guide today!

Get the information you need to prepare for divorce with our free resource Guide to Planning for Your Divorce.

What our clients are saying

Schedule a Discreet Consultation Today!

    Firm Overview

    Anderson & Boback is a highly-respected, experienced Chicago family law firm, skilled in negotiation and litigation. When divorce and other family law issues make your life chaotic and uncertain, you want your case resolved as quickly and fairly as possible. Call Now 312-715-0870