DIVORCE & BUSINESS VALUATION
How Is a Business Valued in a Divorce?
When a private company or shareholding is involved in divorce proceedings, understanding what the business is genuinely worth can be an important part of establishing the overall financial position.
BUSINESS VALUATION EXPLAINED
How Is a Business Valued During Divorce?
There is no single valuation method that applies to every business.
For a profitable trading company, the valuation will often involve establishing the level of earnings the business can reasonably maintain and then considering an appropriate valuation methodology and relevant market evidence.
The analysis may include historical financial performance, maintainable earnings, owner dependency, customer concentration, working capital, debt and surplus cash, assets and the commercial risks associated with the business.
The objective is to establish an evidence-based assessment of the underlying economic value of the business or shareholding, rather than simply applying a multiple to the latest reported profit. business valuation for divorce.
WATCH: BUSINESS VALUATION EXPLAINED
How Is a Business Valued?
Understanding the value of a private company involves more than looking at turnover or the latest profit figure.
In this video, The Valuation Team explains how a professional business valuation is approached and some of the financial and commercial factors that can influence the final valuation.
KEY VALUATION FACTORS
What Factors Can Influence the Value of a Business?
A professional business valuation considers both the financial performance of the company and the wider commercial factors that can affect its underlying value.
Depending on the business, this can include:
No single factor determines the value of every business. The appropriate valuation approach depends on the individual circumstances of the company.
HOW WE DETERMINE VALUE
What Does a Business Valuer Consider?
Each business is different. The valuation approach depends on the nature of the company, the quality of the financial information available and the commercial characteristics of the business.
Financial Performance
Historical accounts and management information are reviewed to understand how the business has performed over time and identify relevant trends or unusual movements.
Maintainable Earnings
Reported profit is not always the same as sustainable underlying earnings. Adjustments may be required for exceptional expenditure, owner remuneration or other items that do not reflect normal ongoing performance.
Owner Dependency
The value of an owner-managed business can be influenced by how dependent the company is on a particular individual's skills, relationships, knowledge or involvement.
Balance Sheet & Working Capital
Cash, debt, working capital requirements, assets and liabilities may all influence the underlying value of the business.
Commercial Risk
Customer concentration, recurring revenue, management depth, competitive position and other commercial risks can affect the sustainability of future earnings.
Market Evidence
Where appropriate, relevant market evidence and valuation multiples can be considered alongside the company's individual financial and commercial characteristics.
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UNDERLYING PERFORMANCE
What Are Maintainable Earnings?
Maintainable earnings are central to many private company valuations.
They represent an assessment of the level of profit that a business can reasonably be expected to generate on a sustainable basis, taking into account its historical performance and current commercial circumstances.
For example, a company may have incurred exceptional expenditure, benefited from unusual income, paid directors above or below a commercial level or experienced circumstances that are unlikely to continue.
For this reason, a valuation may look across several periods of financial information to assess the quality, consistency and sustainability of the company's earnings.
VALUATION METHODOLOGY
Which Methods Can Be Used to Value a Business?
There is no universal calculation that accurately values every company. The appropriate methodology depends on the characteristics of the business and the financial information available.
Earnings-Based Approaches
For profitable trading businesses, valuation may focus on maintainable earnings together with an appropriate multiple supported by relevant market evidence.
Discounted Cash Flow
Where appropriate, a discounted cash flow analysis may be used to consider the present value of future cash flows generated by the business.
Asset-Based Approaches
For businesses where underlying assets are particularly significant, an asset-based methodology may be more appropriate.
The methodology selected should reflect the individual characteristics of the company rather than relying on a generic industry multiple or headline calculation.
THE INFORMATION
What Information Is Needed for a Business Valuation?
The information required will vary depending on the business and scope of the valuation. Typically, the valuation process may involve reviewing:
The purpose is to build a clear picture of both the financial performance and the commercial characteristics of the company.
A COMMON QUESTION
Does a Business Have to Be Sold After Divorce?
Not necessarily.
The purpose of a business valuation is to establish an independent opinion of value. It does not determine how the wider financial settlement should be structured.
Once the value has been established, the parties and their legal advisers can consider that evidence alongside the wider financial circumstances.
The valuation provides the financial evidence. It does not determine the settlement itself.
INDEPENDENT EXPERT EVIDENCE
What Is a Single Joint Expert Business Valuation?
Where the value of a business is disputed in financial remedy proceedings, the parties may jointly instruct an independent expert.
A Single Joint Expert provides an independent opinion based on the available evidence. The expert's role is not to advocate for either party.
The Valuation Team undertakes business valuations for financial remedy proceedings and has experience acting in Single Joint Expert and independently instructed matters. Find out more about our work with solicitors and family lawyers.
Where appointed as a Single Joint Expert, the overriding duty is to the Court.
HOW IT WORKS
What Happens During a Business Valuation?
Initial Discussion
We establish the purpose and scope of the valuation and identify the information required.
Information Gathering
Relevant financial and commercial information is obtained for review.
Financial Analysis
The company's historical performance, maintainable earnings, balance sheet and relevant commercial factors are analysed.
Valuation
An appropriate valuation methodology is applied with reference to the available financial information and relevant market evidence.
Report
A structured written report explains the valuation, methodology, assumptions and professional opinion of value.
THE VALUATION TEAM
Independent. Evidence-Based. Clearly Explained.
The Valuation Team specialises in independent valuations of privately owned and owner-managed UK businesses.
Our role is to provide an objective professional opinion based on the available financial evidence.
Our valuation reports clearly explain the methodology, assumptions and reasoning behind the conclusion reached, providing a structured assessment that can be understood by the parties and their professional advisers.
FIND OUT MORE
Guidance for Your Situation
I Own a Business and I'm Getting Divorced
Information for business owners who need to understand how their company or shareholding may be valued during divorce proceedings.
Find out more →My Partner Owns a Business
Information for spouses and partners who need an independent understanding of the value of a privately owned business.
Find out more →For Solicitors & Family Lawyers
Independent business valuations and expert reports for solicitors dealing with financial remedy proceedings.
Find out more →FREQUENTLY ASKED QUESTIONS
Business Valuation in Divorce FAQs
CONFIDENTIAL INITIAL DISCUSSION
Need an Independent Business Valuation?
If you require an independent company or shareholding valuation in connection with divorce proceedings, we are available for a confidential initial discussion.
We can explain:
- What information will be required
- The likely valuation methodology
- Timescales
- Fixed-fee pricing