You and your spouse are getting a divorce, and your business is your largest asset. You own it together. You know that you do not want to continue to run it together, so your options are to sell the company or for one of you to buy out the other.
Your spouse wants to buy your share of the business from you, but that means determining how much the company is worth. It’s the only way to get a fair split. How do you go about doing it?
One thing to consider is how much all of the business’s assets are worth. You have a physical location, tools, vehicles, machinery and inventory — just to name a few things. Your spouse would be taking ownership of all of this.
Another thing to consider is how much revenue the business brings in annually. In some industries, owners tend to look at a business as a revenue stream for a single year. For instance, if it earns $500,000 per year, that’s the number you use. In other businesses, you multiply the annual earnings by a number of years to get an overall value.
If you do look at revenue, though, remember that it is different than pure profit. A business that has $400,000 in expenses and $500,000 in revenue is actually making $100,000 every year.
These are just a few things to consider when you and your spouse are determining what a company is worth. Be sure you get an accurate valuation and that you understand all of your legal rights during the divorce.