Costs of valuations are based on just that; the scope, purpose, and complexity of the valuation.  Fees are divided into three ranges:

• $1,200 to $1,500, three to five page report, used internally or for non-contested cases.

• $2,500 to $5,000, in-depth report, approx. five to fifteen pages, supporting statements, typically for estate planning, contested/non-contested cases involving more complex methods.

• $5,000 and up, full comprehensive report, supporting statements and illustrations, generally used for contested divorces, complex estate planning cases, damages in wrongful death, etc.  

Generally speaking, in valuing a going concern, such as a small or home based business, various approaches may be undertaken to determine the value depending upon the use or purpose of the value(s).

Within the context of value, the use of "fundamental" or "intrinsic" value, and investment are considered.  Fundamental value referring to expected earnings and investment value being oriented toward investor requirements.  In addition to, and based upon the information provided, the valuation may utilize as guidelines Revenue Rulings 59-60, 65-192, 65-193, 68-609, and Private Letter Ruling 79-05013.

Although there are similarities in the approaches used in the appraisal of commercial real estate and approaches used in business valuations, a business valuation will place emphasis on revenue generating capabilities, or depending upon the approach, the valuation may be a function of assets and earnings.  Again, the valuation approach used depends, in part, on the information provided.

Since market data or comparable sales are often limited, what may be considered a market approach in commercial real estate appraisals is not typically utilized except for the use of market financial statistics or ratios.  The cost approach, often referred to as book value of assets in terms of business valuations, is often used in determining a liquidation value.  However, this latter approach does not consider earnings potential of the underlying assets and is often distorted by partially or fully depreciated assets.

An approach which is most often representative of the fair market value is the "net income" approach, or often referred to as the discounted cash flow method.  In some circumstances, a valuation may incorporate both a discount cash flow approach and an asset based valuation.  Regardless of the approach used, factors such as marketability and competition should not be neglected.

Businesses as Marital Assets

Many courts will view a business as an asset, as opposed to simply the income of one party, during a divorce.  It therefore is almost incumbent upon the parties, or their attorneys, to determine the value of this asset.  The purpose of this information will hopefully enlighten those contemplating divorce.

With the onslaught of individuals creating home based businesses, or simply going into practice for themselves, attorneys are often faced with the dilemma of whether or not the fees charged for such valuations are justifiable in divorce matters.  As mentioned above, valuations may take the form of revenue based models, i.e. cash flow analysis, asset based, or a combination of both.  One may also apply certain rules of thumb such as 1/2 to 1 1/2 times gross revenue or 3 to 8 times net income, but not many of the home based businesses created by today's technology can be based on assets.  Our firm develops valuation models for attorneys to use in cases involving small businesses and divorce. Watch for more articles in your state law journal or contact our office for additional information.