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Assessing the value of a family business

A Pennsylvania divorce is an emotionally charged process, even if in the best of circumstances. Despite the turmoil at home, the rest of your life must continue. If you or your spouse have a business, chances are it is the largest asset you own. As a result, it becomes part of the settlement, which means an accurate valuation is critical when dividing property. The team at Bononi & Company, P.C., understands the challenges clients face navigating a divorce while operating a business. They help prepare you for the financial decisions that occur throughout the process.

According to Ellrich, Neal, Smith & Stohlman, P.A., a closely held family business has a unique set of challenges when it comes to assessing its value. While an experienced appraiser looks at the organization impartially, they apply subjective judgments to come up with a fair market value. There are three approaches utilized in business valuations: 

  • The asset approach looks at the value of the company based on its net assets.
  • The market approach uses qualitative factors when identifying recently sold comparable companies within the same or similar industry, including risk, growth, products and services and business size.
  • The income approach considers the current value of the future revenue stream.

After completing an initial valuation, the expert discounts for lack of liquidity, lack of marketability and if the owner does not possess full control of the company. They also apply normalization adjustments and regulatory requirements, which can have significant ramifications in the final business valuation. Visit our webpage for more information on this topic. 

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