Valuing a small business in a divorce can be complex and often involves several methods. Here are some common approaches:
- Income Approach:
- Capitalization of Earnings: This method estimates future profits and applies a capitalization rate to determine the business’s value.
- Discounted Cash Flow (DCF): Projects future cash flows and discounts them back to present value using a discount rate.
- Market Approach:
- Comparable Sales: This involves looking at the sale prices of similar businesses in the same industry and region to establish a benchmark.
- Asset-Based Approach:
- Book Value: This method values the business based on its net assets (total assets minus total liabilities) as recorded on the balance sheet.
- Liquidation Value: This estimates what the business would be worth if all its assets were sold off quickly.
- Rule of Thumb:
- Some industries have standard formulas or rules of thumb (e.g., a multiple of revenue) that can provide a rough estimate of value.