What Information is Needed for a Business Valuation?

Information Needed for a Business Valuation
Information Needed for a Business Valuation. Henrik Sorensen/Getty Images

Businesses of all types need to have a valuation report prepared sometimes. Most commonly, businesses are valued: 

  • To prepare for the sale of the business
  • If there is a change in ownership - the primary owner leaves the business, for example
  • If a valuation is requested for a major loan for expansion 

How the Business Valuation Process Works

The process begins with a call to a business valuation specialist, usually an appraiser who specializes in these types of valuations.

In addition to visual inspection of the property and inventory checks, someone (usually the owner or someone designated) must gather up many documents and other information to be used in the report.

Here is a list of documents that may be requested for a business valuation report.

Information Needed to Prepare a Business Valuation Report

  1. A detailed description of what is for sale. Is the entire business for sale, or just the assets? Is this going to be a stock sale?
  2. Details about what is not for sale. Are there specific business assets which will not be sold? Are there income streams which will be held back?
  3. A history of the company, so the appraiser can learn about the company for the purpose of valuing its liquidity, viability, and solvency. This part of the valuation is particularly important when the business has stock or there are multiple owners. 
  4. balance sheet for each quarter for the past three to five years (depending on how long the company has been in existence)
  1. Income statements and other financial statements for each quarter for the past three to five years (depending on how long the company has been in existence)
  2. Company financial forecasts (balance sheets and income statements) for five years, if available
  3. Details on the industry and the company's market share in that industry
  1. Detailed demographic information of the company's market
  2. A detailed competitive analysis, including top competitors and their products/services
  3. The company's legal type and ownership structure, including owners and percentages of ownership
  4. Tax returns for the past three to five years. If the business is a pass-through entity,like a sole proprietorship, partnership, or LLC, the owner's personal tax returns will also be required. 
  5. Discussion of any audits or IRS scrutiny of the company, and the results of those audits
  6. Any liens against the business by contractors or suppliers. 
  7. All litigation (lawsuits), whether ended or continuing) for the past five to ten years
  8. Resumes of all company owners (unless a public company), officers, and top management executives
  9. Current monthly payroll data - number of employees and their functions
  10. A current organization chart
  11. A summary of product inventory amounts for each product (from physical inventory) for the past three years
  12. A listing of all current suppliers
  13. Information on current customers - a customer list, if possible
  14. Payment history of customers, including an accounts receivable aging report, for the past three years
  15. Information on employee benefit plans and costs
  1. Information on contracts with top executives and managers
  2. Information on obligations for retirement plans, profit sharing, stock options, and bonuses
  3. Listing of all intellectual property - patents, copyrights, trademarks/service marks - and all license agreements
  4. A listing of all business advisers - attorney, CPA, consultants and any contracts or retainers.

This may sound like a lot of information, but all of it is necessary for a valuation expert to gain a complete understanding of the company's financial position, obligations, and management.

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