Business Transitions and Divorce
Selling a business or otherwise disposing of assets can get very messy in the midst of a divorce. December 6, 2008
Question
I've run into several problems and am thinking of selling my business. How do I know what it is worth? How does transferring ownership work? The estimated gross sales for this year was 750,000 based off of last year's amount. But we are deeper in a recession now. The business is located in Orange County, CA.
Forum Responses
(Business and Management Forum)
From contributor R:
There are several ways to figure the value of a business, but the best thing to do is talk to your accountant and a business broker. Buying the business may involve some liabilities to the buyer. Buying the name and assets is different. $750000 is not bad depending what overhead runs. What was sales in 2006?
From the original questioner:
We started in 05 and were at 150 or so then, in 06 it was 250,000 give or take, and in 07 it was 690,000 give or take. We have sprouted significantly and want to grow more. However, I am going into a divorce and am having those types of problems and am thinking that I could be done. A nice cabin in Oregon sounds good.
From contributor P:
What do you have to sell? It sounds as though there might not be much equity built up in the business. Will it run without you? A broker should be able to tell you what it's worth, if you can provide them with accurate accounting. The way you throw around the sales numbers is a little offputting, though.
From contributor R:
Divorces can get nasty. At this point you can not dispose of assets without sparing the proceeds anyway. Give her the house, you get the business.
From contributor H:
I went through a divorce 6 years ago after 26 years of marriage. It took three years to finalize everything because she moved to northern Colorado. I am in northeast PA. During that time I could not sell anything without informing the court and putting any profits produced from the sale into escrow pending the final masters hearing. Divorce is nasty and expensive. My lawyers cost me 26k, hers cost 21k - both got paid before we split what was left. She got the house, I got the business and commercial property. On paper it was fair, but she got cash. The court statement said that because I have been in business I have a better ability to recover from the effects of divorce and she does not.
The numbers you quote in your post seem odd. You went from 150k to 750k in 3 years? You have better incurred a lot of debt with that amazing growth because her accountant is gonna clean your clock.
You have not been in business long enough for your name to be worth anything. All you are for now is hardware inventory and hopefully debt. Most businesses are still running in the red after 3 years. If so, you are worth nothing except future potential. Which is worth more to you than anyone else.
Get it over quick. The lawyers (catfish) will be the only folks making money out of this.
From the original questioner:
Yep, had to acquire tools to keep up with that kind of increased demand. Also four more guys and a much bigger shop. So debt is a given. Sounds good to be in debt. I am keeping the house and the business. We are trying to keep order and stay friends. No lawyers were hired. The papers are served and we will be in court soon. My filing will say what hers does. We are walking away from this with what we earned. That is the only good thing. However, I'm a little shaken at the amount of debt, and not just that, the amount of overhead we have acquired. With the recession, there's a limited amount of business coming in here. So that's got me thinking if it's going to pick back up or not. Seems like prices for everything are going up and income is going down. How the heck does that work?
From contributor K:
Not that it is my business to ask, but why the divorce? I am thinking it is possible that the business is taking so much of your time that she is tired of being alone. Perhaps selling the business may save the marriage? Just a thought. From the sounds of it, the business will be upside down and you will owe more than it is worth. Best of luck.
From contributor T:
Selling now would be a tough road to go. It is a little early in the life of the business to attract too many buyers, plus it sounds like it (the business) is mostly you anyway. Add in the debt factor and it becomes less attractive to potential buyers for right now. I would suggest trying to hold off selling if you can and build up some equity and sales. The growth path looks good - can you keep it up?
From contributor G:
I have a 26 year old custom furniture business that has consistently done over $800000 and generates excellent cash flow. I bought it 6 years ago, so a successful transition has already happened. I am close to retiring and moving closer to my grandson so I asked my business broker about selling in the next couple of years. She said not to think about it. Said buyers are staying clear of any business that is even close to being tied to the housing and mortgage debacle. If you are cutting wood, they are not interested. I think you will find that you are forced to either hang on for a couple of years or walk away from the business. Tough times in our industries right now. Good luck and hope you can find a buyer.
