What to Prepare Before a Business Valuation

“What is my business worth?” is incomplete until the purpose and the interest being valued are clear. A planned sale, an ownership transfer and a tax-related assignment can require different information and professional judgment.

The IRS’s S Corporation valuation job aid discusses Revenue Ruling 59-60 and the importance of business-specific facts. It is a tax valuation resource with its own scope, not a universal instruction for every transaction. The preparation steps below are a suggested organizational checklist.

Define the assignment before gathering numbers

Write down why the valuation is needed, the relevant date and the exact ownership interest. Identify the intended users of the report and any requirements they have. A buyer’s discussion of price is not automatically the same assignment as a formal valuation.

Ask the professional to explain the applicable standard of value, assumptions and report format. Confirm any qualifications required for that particular purpose. Avoid choosing a method before the assignment is understood.

Assemble financial evidence with explanations

Gather the periods the professional requests, including statements, tax returns where relevant, debt information and supporting schedules. Provide explanations for unusual events rather than removing them from the records.

If management proposes an adjustment to earnings, label it as proposed and provide evidence. For example, explain the amount, when it occurred and why management believes it is unusual. An owner’s preferred adjustment is not automatically one a valuation professional should accept.

Describe how the business operates

Prepare a concise account of customers, suppliers, key employees, contracts and responsibilities. Identify which activities depend heavily on the owner and which can continue without that person.

Customer concentration, renewal terms and operating capacity are useful subjects for a conversation, not automatic discounts that can be calculated from a blog post. Give the adviser the facts and allow the analysis to reflect the purpose and circumstances.

Keep confidential materials in a controlled location. Record which documents have been supplied and which questions remain open. Use a secure sharing process agreed with the professional.

Ask what the conclusion does and does not mean

Before using a report, understand its effective date, assumptions, limitations and permitted use. Market conditions or new information may change the relevance of a prior conclusion. A valuation does not guarantee that a buyer will pay a particular price.

For a Business Valuations conversation, bring the assignment purpose, ownership structure, available financials and deadline. Legal, tax and transaction requirements should be coordinated with the appropriate specialists. This article does not calculate value or provide a valuation opinion.