Business valuation: what to know

What the job involves, what changes the price, and what to ask a pro.

What business valuation is

A valuation specialist analyzes a company's finances, assets, market and risks to estimate what it is worth, for sale, buyout, partnership changes or planning. Owners use one when selling, buying out a partner, going through a divorce or planning for succession. This is general information, not legal, tax or financial advice.

Signs you need it

  • You plan to sell the business or buy out a partner
  • A divorce or estate requires a value for a business interest
  • You are planning for succession or gifting shares
  • An investor or lender asked for an independent value
  • You want to know what drives value so you can improve it
  • A dispute among owners needs a neutral estimate

What the pro does

  • Discuss the purpose of the valuation, since it affects the approach and the standard of value
  • Collect financial statements, tax returns, contracts and information about owners and customers
  • Review the business's history, assets, debts and market position
  • Apply accepted methods, such as comparing with sales of similar businesses, projecting income or reviewing assets
  • Write a report explaining the methods, assumptions and conclusion
  • Present the findings and answer questions

What changes the price

Every job is different, so we do not publish prices. These are the things that move the quote up or down.

  • Size and complexity of the business
  • Purpose of the valuation and the level of report needed
  • Quality of financial records
  • Number of owners and ownership classes
  • Whether real estate or equipment must be appraised separately
  • Whether the work might be used in court
  • Deadline

What a written quote should spell out

  • The purpose and the date of the valuation
  • Type of report: summary or detailed
  • Documents you must provide
  • Whether the specialist is available to testify if needed
  • Delivery date and format

Questions to ask before you hire

  • What credentials do you hold, and what professional organizations are you part of?
  • Have you valued businesses like mine?
  • Which methods will you use and why?
  • What standard of value fits my purpose?
  • Does your fee depend on the value you reach?
  • What happens if my records are incomplete?
  • Can your report be used in a court or by a lender?

Red flags

  • A fee that depends on the value found
  • A value given with no report or method explained
  • A specialist who tells you the value before reviewing your records
  • Overlooking debts, owner pay or customer concentration
  • A specialist who has a conflict and does not disclose it

What you can do yourself

You can organize several years of financial statements, tax returns, contracts and lists of key customers and assets. Online calculators can give a rough idea but should not replace a formal valuation for a sale, divorce or estate. Legal and tax questions belong with an attorney and a CPA.

Licenses and permits

Business valuation is generally not licensed by the state, though professional credentials exist and CPAs may hold valuation designations. Ask about credentials and verify them with the issuing organization or state board.

Business valuation questions

Is a valuation the same as a sale price?

No. A sale price depends on a buyer and negotiation. A valuation is an opinion of value for a stated purpose.

Why do two valuations differ?

Purpose, assumptions and methods can differ. Ask each specialist to explain.

Can I use an online estimate for a divorce?

Courts often want a formal valuation. Ask an attorney.

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