If you are a business owner, understanding how to properly value your company is more than a financial exercise—it is a legal necessity. Whether you are preparing for a sale, resolving a partnership dispute, or planning your estate, knowing your company’s true worth can shape the outcome of major decisions.
This guide explains what business valuation is, why it matters, and how six key methods are used to assess what a business is truly worth. As attorneys who regularly assist clients in Utah, Arizona, and Texas with business transactions and disputes, we have seen how critical accurate valuations are in legal matters.
What Is Business Valuation and Why Is It Important?
Business valuation is the process of determining the economic value of a company. This can include its assets, earning potential, market position, and intangible value like brand recognition or intellectual property.
We see valuation issues arise most often in:
- Business sales and acquisitions
- Partnership disputes or buyouts
- Divorce proceedings involving marital property
- Estate planning and wealth transfers
- Shareholder or investor negotiations
- Tax planning and compliance
Each of these scenarios requires a well-documented valuation process that can stand up to scrutiny. Getting it wrong can lead to disputes, IRS challenges, or significant financial loss.
Who Needs to Value a Company?
You may need to value your business if you are:
- Selling or merging with another company
- Bringing in new investors or partners
- Buying out a co-owner or shareholder
- Going through a divorce involving business assets
- Creating an estate plan or succession strategy
- Seeking a loan or line of credit secured by business value
- Resolving a shareholder or partnership dispute
We work with business owners, investors, and financial professionals to help ensure the valuation process meets both financial standards and legal requirements.
Different situations call for different approaches. The right valuation method depends on your specific goals—whether you are selling, planning your estate, or resolving a dispute.
6 Proven Methods to Value a Business
Different situations call for different approaches. Here are six of the most widely used business valuation methods and when each one applies.
1. Asset-Based Valuation
This method looks at the net asset value of a business—essentially, what you own minus what you owe. It works well for asset-heavy companies like real estate holdings or manufacturing firms.
Legal note: We often use asset-based valuation in partnership dissolutions or divorces where the goal is to divide tangible business property fairly.
2. Discounted Cash Flow (DCF) – The Income Approach
This approach calculates the present value of future cash flows the company is expected to generate. It requires forecasting revenue, expenses, and growth rates to arrive at an estimate of intrinsic value.
Why it matters legally: In investor negotiations or shareholder disputes, DCF often becomes the most contested method because it relies heavily on assumptions about future performance.
3. Market Approach (Comparable Company Analysis)
This method looks at the sale price or market value of comparable businesses. If a similar business sold recently, that can serve as a benchmark for your own company’s value.
In practice: This is useful in M&A transactions where we are advising on deal terms and evaluating whether an offer is fair based on market conditions.
4. Earnings Multiplier Method
A more streamlined version of the income approach, this multiplies the business’s earnings by a standard industry multiple. It is quick and commonly used for small businesses.
Legal insight: We sometimes use this as a starting point, but we caution clients that it may not reflect unique circumstances like pending litigation or key employee risk.
5. Book Value Method
This method uses the business’s balance sheet to calculate total assets minus liabilities. It is easy to compute but often undervalues the business, especially if it has significant intangible assets like goodwill or brand equity.
Legal application: In estate planning, this can be a fallback approach when other data is limited or when the parties agree to use a simplified method.
6. Comparable Transaction Analysis
Often overlapping with the market approach, this involves benchmarking against public or private companies in the same sector. It is useful for providing external context to a valuation.
Our role: As your attorney, we help evaluate the reliability of comparables and ensure any valuation used in a transaction or dispute is defensible.
What Factors Influence Company Valuation?
In addition to the method used, several factors affect how your business is valued:
- Industry and market trends – Growth industries often command higher multiples
- Revenue consistency and profitability – Stable earnings increase perceived value
- Customer concentration – Heavy reliance on one or two clients is a risk factor
- Intellectual property and proprietary processes – These add intangible value
- Quality of management team – Key person dependency affects value
- Legal risks or pending litigation – Outstanding legal issues reduce value
- Economic conditions – Broader economic factors impact valuations
At Jon Miller Law, we help business owners assess these elements through both a financial and legal lens, ensuring that valuations reflect reality and can withstand challenge.
How Do You Choose the Right Valuation Method?
Choosing the right method depends on your goal:
- Selling your business? Consider DCF or market approach for a growth-oriented valuation.
- Resolving a dispute? Asset-based or book value may provide a more conservative baseline.
- Estate planning? Discounted valuations may apply for family transfers, subject to IRS rules.
- Raising capital? Earnings multiplier or DCF can support investor conversations.
We advise clients on the best strategy for each case and work alongside CPAs and valuation experts to ensure the approach is legally sound and financially accurate.
As attorneys, we do not compete with CPAs—we collaborate. Our role is to ensure your valuation is legally defensible and properly documented for its intended purpose.
Legal Situations That Require Business Valuation
We routinely help clients with valuation-related needs in these scenarios:
- Mergers and acquisitions – Ensuring fair value in deal negotiations
- Partner buyouts – Determining fair buyout price when one partner exits
- Divorce settlements – Dividing business interests as marital property
- Estate and gift tax planning – Meeting IRS requirements for transfers
- Shareholder disputes – Resolving disagreements over company value
- Business succession planning – Transitioning ownership to the next generation
Do You Need an Attorney for Business Valuation?
Yes—especially when:
- The valuation will be used in litigation or a legal proceeding
- You are negotiating with another party who has their own valuation expert
- You need to comply with IRS guidelines for estate or gift transfers
- You are structuring a deal and need to protect your legal interests
- There is potential for challenge from a co-owner, spouse, or regulatory body
As attorneys, we do not compete with CPAs—we collaborate. Our role is to ensure your valuation is legally defensible, properly documented, and aligned with the purpose for which it is being used.
Ready to Understand Your Business’s Value?
If you own a business in Utah, Arizona, or Texas, and you are preparing for a sale, dispute, estate plan, or investment round, we can help you navigate the valuation process with confidence.
Contact Jon Miller Law today to schedule a consultation. We will help you understand your options, connect you with trusted valuation professionals, and ensure the result serves your legal and financial goals.
Key Takeaways
- Business valuation is essential for owners considering a sale, dispute, or succession.
- Six common methods exist: asset-based, DCF, market approach, earnings multiplier, book value, and comparable transactions.
- The right method depends on your purpose—selling, planning, or resolving disputes.
- Multiple factors beyond financials affect valuation, including legal risks and market trends.
- An attorney helps ensure valuations are defensible and meet legal standards.
- Collaboration between attorneys and CPAs produces the most reliable valuations.
