By Christopher Sargent, CPA/ABV, AM
Senior Analyst / Valuation and Litigation Services
Key Points
- A business valuation supports planning decisions long before a sale is on the horizon
- Knowing value reduces risk in buyouts, gifting strategies, and shareholder transitions
- Objective, credentialed analysis provides defensible insights that strengthen decision-making
Many business owners associate valuation with one event: selling the company. In reality, understanding what a business is worth can shape decisions years before a transaction ever occurs. Whether the goal is succession planning, gifting ownership, or aligning shareholders, valuation provides clarity that reduces uncertainty and risk.
What Is a Business Valuation and What Does the Process Involve?
A business valuation is a professional analysis that uses financial data and recognized methodologies to estimate a company’s value to an outside buyer or third party.
Our team offers two primary engagement types tailored to different planning needs. A valuation engagement provides a comprehensive analysis supported by a detailed written report that is typically used for third-party reliance, such as by the IRS, lenders, or legal counsel. A calculation engagement is more limited in scope and is often used for internal planning or early-stage discussions. We help business owners determine which approach best aligns with their objectives, timeline, and documentation requirements.
The process typically includes:
- Defining the scope and intended users
- Gathering financial and operational information
- Applying income, market, and asset approaches as appropriate
- Reconciling results and concluding on value
For owner-operated businesses, our team would review and adjust financial results to reflect how an outside buyer might evaluate owner compensation, discretionary expenses, and sustainable cash flow.
Everyday Situations That Require a Valuation
Valuations are commonly used for gift and estate planning, succession planning, financing transactions, and shareholder disputes. Internally, they support buyout discussions and negotiation preparation.
When a valuation is submitted to the IRS, provided to a lender, or used in a legal proceeding, a comprehensive engagement is typically required. In gift and estate matters, especially, the IRS can examine or audit the valuation as part of its review of the gift tax filing. Our goal is to prepare reports with clear methodologies and supporting documentation so that, if examined, the documentation is complete and defensible.
Creating Leverage Through Early Preparation
Understanding your company’s value before a major transaction or life event creates leverage. It is not uncommon for owners to receive an unexpected call from a buyer, and those conversations can move quickly. Having a recent value estimate provides context before you are asked to respond.
A comprehensive valuation generally takes 30 to 45 days, depending on complexity and available information. Waiting until an offer, financing need, or tax deadline is already on the table can create unnecessary urgency. Advance preparation allows owners to approach decisions with clarity rather than in reaction.
Strengthening Long-Term Planning and Shareholder Alignment
Valuation is equally valuable when a sale is not imminent. It informs retirement planning, gradual gifting strategies, and ownership transitions to the next generation. It can also support shareholder alignment by fostering a shared understanding of value and how decisions may influence long-term results.
Our credentialed valuation team combines specialized training with real-world advisory experience to deliver objective, defensible analysis. Through our Valuation and Litigation Services, we provide comprehensive valuation and calculation engagements tailored to each client’s needs, equipping business owners to make informed decisions with confidence.
Frequently Asked Questions (FAQ’s)
- Do I need a valuation if I am not planning to sell?
Yes. Valuations support retirement planning, gifting strategies, shareholder alignment, and informed decision-making long before a sale is considered. - What is the difference between a valuation and a calculation engagement?
A valuation engagement is comprehensive and designed for third-party use in tax, legal, or financing matters. A calculation engagement is more limited and often used for internal planning purposes. - How long does a full valuation typically take?
Most comprehensive valuations require approximately 30-45 days, depending on complexity and the availability of information.