How to Get a Business Valuation Quote (and What to Send)

How to Get a Business Valuation Quote (and What to Send)

Selling a business, buying out a partner, applying for an acquisition loan, settling an estate or a divorce: at some point many owners need a valuation that someone else will rely on. A free online calculator gives you a ballpark in minutes. A professional valuation gives you a number that a buyer, a lender, the IRS or a court will accept. This guide covers when you need which, the types of valuation reports you can ask for, how to compare quotes, and the documents to have ready so the quote is accurate and the work goes quickly.

Before you call anyone, get your own estimate with the business valuation calculator. It builds seller's discretionary earnings (SDE) and EBITDA from your profit and add-backs and values the business with multiples, a capitalization rate and net assets. You will understand the appraiser's questions much better, and you will know straight away if a number is far from where your own figures point.

When a calculator is enough, and when it is not

A calculator estimate is usually enough to:

• decide whether selling now is worth exploring;
• set goals ("what profit would make this worth $1 million?");
• sanity-check a broker's suggested asking price;
• plan a buy-sell agreement conversation with a partner before you hire anyone.

You generally need an independent professional valuation when:

• a lender is financing a business purchase (SBA lenders follow SBA's SOP 50 10, which requires an independent business valuation from a qualified source on many change-of-ownership loans; ask your lender which threshold applies to your deal);
• the value goes on a tax return or to the IRS: gift and estate tax filings, some charitable gifts of business interests, and buy-ins or redemptions between family members;
• a court or a mediator is involved: divorce, shareholder disputes, partner buyouts that went wrong;
• an ESOP, a stock option plan or a fairness opinion needs a defensible value.

The difference is reliance. If anyone other than you will make a decision on the number, they will want to know who produced it, under which standard, and with what evidence.

The three report types you can ask for

Most US valuation analysts follow either the AICPA's Statement on Standards for Valuation Services (VS Section 100) or USPAP, the appraisal standards used by many credentialed appraisers. Under the AICPA standard, there are two kinds of engagement, and in practice firms offer three levels of report:

1. Calculation engagement (calculated value). You and the analyst agree which methods to use, and the analyst applies them to your numbers without the full independent analysis. Faster and cheaper. Good for internal planning and many partner discussions. Usually not accepted by courts or the IRS.
2. Valuation engagement, summary report (conclusion of value). The analyst picks the methods, reviews the business, the industry and market data, and concludes on a value. The report is shorter, which keeps the cost down.
3. Valuation engagement, detailed report. The same work with the full write-up of every step: what lenders, tax filings and litigation usually need.

When you ask for a quote, say which of these you want and who will rely on it. A quote that does not name the report type is impossible to compare with another.

Who does business valuations

Look for an analyst who values businesses of your size and type regularly, and who holds a recognized credential, for example:

• ABV (Accredited in Business Valuation), awarded by the AICPA to CPAs;
• CVA (Certified Valuation Analyst), awarded by NACVA;
• ASA with a business valuation specialty, awarded by the American Society of Appraisers.

Business brokers also give opinions of value, often free when they hope to list your business. A broker's opinion is useful market feedback, especially on what similar businesses have actually sold for locally, but it is not an independent valuation, and a lender or court will not treat it as one.

What to send with your quote request

The scope (and so the price) depends on how much work the analyst must do to understand the business. Sending a clean package up front gets you a firmer quote. Have these ready:

1. Three to five years of financial statements and tax returns, plus year-to-date figures for the current year.
2. A list of add-backs with evidence: the owner's salary and benefits, personal expenses run through the business, one-time costs such as a lawsuit or a move. These drive SDE, so expect questions.
3. A balance sheet with fixed assets and inventory, and any equipment appraisal you already have.
4. Customer concentration: the share of sales from your top five customers. A business where one customer is 40% of revenue is worth less than the same profit spread across hundreds.
5. Leases, loans and key contracts, including how long the premises lease runs and whether it can be assigned to a buyer.
6. Staff list with roles and pay, and who would stay after a sale.
7. The purpose, the valuation date and who will rely on the report.

A worked example: what your own numbers tell you first

Take the example in the valuation calculator: $120,000 pre-tax net profit, $60,000 owner pay, $10,000 of personal perks, $5,000 interest and $15,000 depreciation.

• SDE: $120,000 + $60,000 + $10,000 + $5,000 + $15,000 = $210,000.
• EBITDA: SDE minus a $70,000 market salary for a replacement manager = $140,000.
• At 2× to 3× SDE, the range is $420,000 to $630,000. At 3.5× EBITDA, $490,000.

The multiples are example inputs, not market data, but the exercise tells you two useful things before you pay anyone. First, the add-backs are worth $90,000 a year here, so documenting them well matters more than anything else. Second, every 0.5× change in the multiple moves the value by $105,000, so the analyst's evidence for the multiple (comparable sales, risk, growth) is the part of the report to read most carefully.

How to compare valuation quotes

Put each quote side by side and check:

• Report type and standard: calculation, summary or detailed; AICPA VS Section 100 or USPAP.
• Valuation date and standard of value: fair market value is the usual one for tax and lending; a buyer's "investment value" can be higher.
• What is included: site visit, management interview, industry research, a draft for your review, and one round of questions.
• Fixed fee or hourly, and what triggers extra charges (late documents, a second valuation date, testimony).
• Timeline from the day you send complete documents.
• Independence: no stake in the deal, and no fee tied to the value concluded.

A low quote for a detailed report that a court or the SBA will rely on is worth questioning; a high quote for a calculation you only need for planning is worth turning down.

Before you send the request

1. Run your numbers through the business valuation calculator and write down the range.
2. Gather the documents above in one folder.
3. Ask two or three credentialed analysts for a written quote naming the report type, scope, fee and timeline.
4. If you are selling, also ask a broker what comparable businesses in your area have sold for.

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