Most business owners will conduct a business valuation once or twice in their careers at most. This often occurs when an individual wants to buy or sell shares in the company, or when the owner is contemplating their exit plan. Understanding the value of a company is an essential planning tool regardless of why it’s being conducted.

Most owners are familiar with earnings multiples as way to value a company. However, there are established methods used by valuation professionals to determine value based on several factors. Whatever the method and reason for the valuation there is a significant amount of documentation needed to conduct a valuation. Business owners should be aware of these requirements and plan to have these documents ready before the valuation work begins. To help business owners considering to move forward with a business valuation the following outlines the documentation requirements.

Commonly Requested Business Valuation Documentation

  • Detailed description of the company and its operations. This description needs to include what portions of the company are for sale (including assets) and which are not. It is important to be clear upfront what parts of the business should be included in the valuations.
  • Information on the company’s tax structure, its owners, and what percentage is owned by which individual.
  • Tax returns for the past five years.
  • Information on any audits or other investigations by the Internal Revenue Service or States Department of Revenue.
  • Financial statements along with other essential financial data for the past five years.
  • List of top customers and the percentage of business represented by each customer. Also, include the payment history of customers including accounts receivable aging report for the past three years.
  • Vendor/supplier concentration analysis used for materials purchases.
  • Information on any liens against the business by contractors, vendors, or suppliers.
  • Organizational chart detailing the management team and functions, including the board of directors, if applicable.
  • Information on contracts with top executives and members of management, including key management contracts.
  • Payroll data, including officer compensation and key person salaries, and the total number of employees.
  • Information on employee benefit plans and costs including profit sharing, stock options, and bonus obligations.
  • Competitive analysis, including top competitors and their related products or services.

To provide a complete and accurate valuation, a valuation analyst needs to have detailed company information available. If you are contemplating a business valuation for your company, it is important to be prepared with the proper documentation. The list above is just a sample of the most commonly requested information. If you are looking for assistance with a business valuation or have questions on how to prepare, Selden Fox can help. For additional information click here to contact us.

John Wojcik

John Wojcik is a Certified Valuation Analyst and a member of the National Association of Certified Valuators and Analysts (NACVA). John earned his bachelor's degree in accounting and finance from Illinois State University and his MST in taxation from Northern Illinois University - College of Business.