A business divorce—when business partners break up and move on—can be amicable, nasty, or anything in between. Whether by peaceful dissolution or scorched earth litigation, the value of the business is important. But determining value is not as simple as it seems. And even peaceful breakups can raise tricky valuation issues and disputes. Thus, a valuation expert is often necessary when selling the business to a third party, selling out to the other partner, or simply dissolving the company and dividing up the assets or proceeds.
A business valuation depends on many factors, including the type of entity, the purpose of the valuation, the standards of value (fair market value? Investment value? Statutory fair value?), and the premise of value (e.g., is it valued as a liquidation or a going concern?). And even where these factors are established, still other variables determine which of the three major valuation approaches to use: asset approach, income approach, or market approach. For example, a business with $5 million in sales may be worthless under an asset approach because the individual driving those sales has no non-compete and can simply set up shop across the street upon sale or dissolution, but if that same company is valued as a going concern with the benefit of a key-man consultant agreement and non-compete it is suddenly worth quite a lot. Similarly, two businesses that net the same amount in sales during the last year still could have drastically different market values, which can be due to the condition of the company equipment, the market demand for the company’s product or service, and the status of capital improvements or investment necessary for the business to continue to grow. And in the case of a minority owner’s share of the business, the value of that interest is usually significantly less than a straight pro rata percentage because the minority owner cannot sell company control. Given all the factors and considerations, even amicable business divorces can benefit greatly from a valuation expert.
Business divorce litigants often need valuation experts too. For example, one litigant may be demanding his share of the business that he has grossly overvalued. A business valuation expert can not only bring him back to earth, but can tell the court what is at stake, which has important consequences in determining the successful party for the purposes of awarding attorney fees under A.R.S. § 12-341.01.
When facing a business divorce, you need an experienced business divorce trial lawyer who can position your matter for victory, whether after trial or through a settlement leveraged by that lawyer’s skills, trial experience, and reputation. Contact Williams Mestaz, L.L.P., at (602) 256-9400 today, and set up an appointment to speak with us about your case.