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Putting a value on the family business

A previous post on this blog discussed the important task a personal representative of an estate faces when he or she goes to put a value on both the overall estate of a recently deceased person. Equally important is the process of putting a value on each asset or debt within the estate, particularly those assets that do not have any easily identifiable value.

One asset which can be very hard to put a precise value on and which can also lead to a lot of controversy is the family business of the deceased person, or even his or her portion of that business. While there are experts available in the Fresno area and throughout California who make a living putting values on businesses, it is still helpful for a personal representative to know how best to estimate a business's value, particularly if the family wants to sell the business and especially if the sale is going to be to another family member.

Since most family businesses are not sold through public trading, there is no easy way to guess overall value. However, there are some guidelines people can use when putting a value on a small business. One is simply to look at the property and assets the business actually owns.

Another method is to look specifically at how much revenue, or gross income, a business generates, although this can be misleading since revenue does not necessarily equal profit. Others, including successfully investors, use a modified method to account for how much money a business will actually put in the pocket of the new owner.

In many ways, though, putting a value on a business is often more of an art than a precise science, and it can also involve complicated legal questions best discussed with a California probate attorney with experience in business law.

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Law Office of Jeffrey B. Pape, P.C.
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