As a business owner you should be in possession of a business valuation that is updated yearly so you have an accurate understanding of your company’s value. Updated valuations help with:

• taking advantage of opportunities that might arise such as planning for an expansion or taking on a new partner
• moving quickly when you are ready to sell your business
• planning an exit strategy for retirement, whether that means selling or restructuring
• having a current scope of the business for your family and business partners should something happen to you

Similar to an appraisal for a home sale, a business appraiser will inspect and analyze your business, including valuation of assets and other factors. You will need to compile all the required documents: business financial statements, operational procedures, marketing and business plans, customer and vendor information, tax returns for the past three to five years, and staff records.

The two main financial statements to consider when preparing for a business valuation are the income statement and the balance sheet. You should have three to five years of past records for each. If you are preparing a valuation report with the intention of selling your business, you should have a detailed description of what is for sale (i.e. the entire business or just assets?) as well as what isn’t for sale (i.e. specific business assets or income streams that will be held back). Other information needed to prepare a business valuation report include:

• A history of the company for the purpose of valuing its liquidity, viability, and solvency, including start date and any ownership or location changes
• A detailed summary of physical inventory amounts for the past three years (i.e. machinery, buildings, equipment, etc.)
• Cash flow statements, list of debts, annual turnover, current monthly payroll data, and profit and loss statements
• List of all intellectual property: patents, copyrights, trademarks, license agreements
• Legal documents, including: leases, insurance policies, liens against the business, all litigation documents for the past three to five years, and any correspondence or documents in regards to audits or IRS scrutiny
• Registration papers: certificates, licenses, permits
• A detailed analysis of top competitors, including their products/services
• Sales reports and forecasts, including balance sheet and income statements
• Business documentation such as marketing and customer service procedures
• A current list of suppliers, including agreements and prices
• A current list of customers, including payment history with an accounts receivable aging report for the past three years
• A current staff roster with job descriptions, work history details, performance reviews, pay rates, and employee benefit plans and costs
• Information on contracts with top executives and managers
• Business plans such as marketing, emergency management, and growth forecasts