Whether you are selling your business, raising capital or preparing your estate, an accurate business valuation is vital to taking the next step. Before the valuation begins, a business owner should understand the information which will be required. The process of determining the value of a business is no small task. Valuation is a balance of both art and science, and while the numbers will play the biggest role, presenting your company accurately and professionally will always be advantageous. Broken into 5 categories, here are twenty materials needed for a business appraisal the business owner will need to provide.
1. Description of Company
To begin with, the valuators will need to know what they are putting a value on. Describe your business, specifying clearly what is included and what is excluded in the valuation.
- Create a comprehensive description of the company. If selling, clarify if the entire business is for sale, or just the assets? What about a stock sale?
- Specify anything that is not to be included. Are there specific business assets which will not be included in a potential sale? Are there income streams which will be held back?
- Develop a thorough and concise history of the business, allowing the appraiser to become acquainted with the history, style, and culture of the company.
2. Tax & Financial Statements
Of course the major factor in the value of a company is the financial condition of the company. The business owner will need to carefully prepare these documents as they will be at the heart of valuation.
- Prepare quarterly balance sheets covering a minimum of three years. Depending on the situation, five years may be requested.
- Prepare quarterly income statements and other financial statements covering a minimum of three to five years (depending on how long the company has been in existence).
- If possible, prepare company financial forecasts for the next five years.
- Present tax returns covering the same amount of time as your other documents.
3. Market & Industry Analysis
No business is an island to itself. It is ultimately only part of the industry in which it participates. Explain your company’s positioning and share in the market, and factors related to the health and future prospects of the industry.
- Concisely present details to the industry and the role of the company in that industry, such as market share, positioning, market demographics, and overall industry growth.
- Analyze the competition, focusing on top competitors, their core competencies, and what products or services they specialize in.
- List the business’s legal type and explain ownership: owners, ownership structure, and ownership percentages.
- Provide the results and an explanation concerning any audits, IRS scrutiny, or litigation within the last five to ten years.
4. Personnel Information
A vital part of each business is the personnel. Subsequently, you’ll need to provide the following items.
- Provide copies of ownership, officers, and higher management resumes.
- Monthly payroll, including the number of employees and a description of their functions.
- An updated organization chart.
- A document which explains obligations regarding benefit plans, retirement plans, and financial incentives such as stock options, bonuses, and profit sharing.
- Explain contractual agreements with top officers and management.
5. Miscellaneous Documents
In addition to all the other documents you need, here are a few more you should gather.
- A summary of product inventory amounts for each product (from physical inventory) for the past three years.
- List all current suppliers and customers, with payment history, if applicable.
- Compile all intellectual property such as patents, copyrights, and trademarks.
- List all business advisers: such as legal aid, CPAs, consultants, or retainers.
While this is quite a stack of information, it is necessary to get the best and most accurate valuation for your company. The valuation expert will be intimately acquainting himself with every aspect of your company, and these documents will be immensely valuable to him. No matter the reason. If you are interested in an expert valuation, contact George & Company to learn about our valuation process and how we can help you. Our expert team would love to assist you through the process.