A business valuation is the process of determining a company’s fair market value. By analyzing a range of factors, including the company’s history, financial condition, assets, liabilities, market position, and future earnings potential, a business valuation determines the organization’s value at a specific point in time.

Business valuations are commonly used when making major organizational decisions, planning for business succession, or helping the Court determine the value of a business asset and/or the income available to a spouse during a separation. A quality valuation provides an informed estimate that helps owners, investors, and advisors make sound financial decisions.

There are three main business valuation methods, each using a different approach to determine an organization’s value.

The first is an income-based approach. This method values a business based on its power to generate future income. By estimating how much money the business will produce, it converts that expected income into a present value. This approach is regularly used for established businesses with predictable earnings.

The next is a market-based approach. This approach involves comparing the business to similar guideline companies that are publicly traded or have been sold. The application of this method uses valuation ratios based on current market prices and historical or projected financial data for the guideline companies. Selected valuation ratios derived from the analysis are then applied to the business’s adjusted historical or projected financial results to arrive at indications of value.

Finally, the asset-based approach considers the value of the assets and liabilities of the business as a means of valuing the equity of the business itself. In the Asset-Based Approach, net asset value is estimated by restating the value of assets and liabilities from historical cost to fair market value determined on a value-in-use basis. Assets and liabilities can be valued either individually or collectively. The individual assets and liabilities of a business can be appraised using the Cost, Market, and Income approaches to asset valuation.

This method is often used for asset-heavy businesses where the other valuation approaches will not capture the underlying value of a company, companies being liquidated, or firms with limited profits but significant physical assets.

Often, multiple methods are used to cross-check results and arrive at a balanced estimate of a company’s fair market value.

The time to complete a business valuation depends on the size and complexity of the company, but most valuations typically take three to four weeks from start to finish. A smaller business with well-organized financial records and clear-cut operations can often be valued in just three weeks, sometimes less, while larger companies or those with multiple revenue streams, complex ownership structures, or incomplete financial documentation may take longer.

The cost of a business valuation varies widely depending on the size of the business, its financial complexity, and the purpose of the valuation. For most small- to mid-sized businesses, a professional valuation typically costs between $6,000 and $20,000.

Several factors influence the final price, including:

• Business size and revenue
• Complexity of the business
• Purpose of the valuation
• Quality and availability of financial records

There are three levels of valuation reports that can impact costs: comprehensive, estimate and calculation. While all valuation conclusions are based on generally accepted valuation theory and principles, the level of valuation conclusion expressed depends on the depth of work performed by the valuator, with comprehensive having the most extensive and calculation having the least extensive. A valuator applies substantial professional judgment in classifying a valuation conclusion as comprehensive, estimate or calculation.

The suitability of the level of valuation conclusion expressed depends on the purpose, users, and uses for which the valuation report is prepared.

• A Comprehensive Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on a comprehensive review and analysis of the business, its industry, and all other relevant factors, adequately corroborated and generally set out in a detailed report. This report provides the highest level of assurance with respect to the value conclusion.
• An Estimate Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on limited review, analysis, and corroboration of relevant information, and it is generally set out in a valuation report that is less detailed than the Comprehensive Valuation Report. This report provides a lower level of assurance with respect to the value conclusion.
• A Calculation Valuation Report contains a conclusion as to the value of shares, assets, or an interest in a business that is based on minimal review and analysis and little or no corroboration of relevant information, and it is generally set out in a brief valuation report. This type of report provides the least amount of assurance with respect to the value conclusion.

Given the range of factors involved, we’ll provide a customized quote after reviewing your company’s financial information and goals.

While a business valuation and an appraisal are both processes used to estimate an organization’s value, they address different aspects and use different methods.

A business valuation determines the fair market value of an entire company. It looks at the full picture of the business, including financial performance, revenue, expenses, assets, liabilities, market conditions, and future earning potential. Professionals performing a valuation may analyze financial statements, compare the business to similar companies, and project future cash flow.

An appraisal, on the other hand, typically refers to estimating the value of a specific asset rather than the entire business, focusing on the market value of that particular asset at a given point in time. Appraisals are not performed by business valuators.

There are several reasons you may need to conduct a business valuation throughout your company’s lifecycle. It can help you understand the true financial worth of their business and make informed decisions about growth, ownership, and long-term planning.

When you might require a business valuation

• Selling or buying a business
• Bringing in investors or partners
• Succession planning
• Mergers or acquisitions
• Legal or tax matters
• Strategic planning and growth decisions

Why a business valuation is valuable

• Understanding your company’s true worth
• Identifying financial strengths and weaknesses
• Improving negotiation power in sales or partnerships
• Supporting tax and legal compliance
• Planning for the future

Many business owners conduct valuations every few years to track how their company’s value is changing over time. This allows them to measure progress, ensure they are prepared to seize opportunities as they arise, and mitigate potential risks.

A business valuation is performed using a systematic approach that evaluates a company’s financial results, asset base, competitive position, and expected earnings to determine its overall worth. We use financial data, industry research, and established valuation methods to arrive at a valuation conclusion.

The exact procedure can vary depending on the business and the valuation’s purpose, and it usually includes multiple essential steps.

• Gathering financial and business information, including financial statements, tax returns, sales records and revenue breakdowns, asset lists and equipment inventories, debt and liability information, ownership structure and shareholder agreements, and industry and market data.
• Analyzing the company’s financial performance, including financial history, identifying trends and determining how profitable and stable the business is. This analysis may look at revenue growth trends, profit margins, operating expenses, cash flow reliability, and debt.
• Assessing assets and liabilities, including physical assets like inventory, equipment, and real estate, as well as intangible assets like brand equity, intellectual property, and customer relationships.
• Assessing industry and market climate, including industry growth, competitive landscape, market demand, and economic conditions, to help determine how attractive the business might be to buyers or investors.
• Applying valuation methods, using one or more recognized valuation approaches, including the income approach, market approach, or asset approach.
• Preparing the valuation report — the summarized findings explain the methods used, key financial assumptions, supporting data and calculations, and the fair market value of the business. This report can be used for decision-making, negotiations, legal matters, or financial planning.

The value of your business depends on several factors, including the profit it generates, the assets it owns, its growth potential, and the industry it operates within. While every business is different, the general goal of determining what a business is worth is to determine its fair market value — the highest price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

Numerous essential elements affect a business’s value, including financial performance, assets and liabilities, market, economic and industry factors, and business characteristics. To determine a more accurate value, professionals typically perform a formal business valuation using financial analysis and market comparisons. This process delivers a clearer indication of your business’s current value and helps you make knowledgeable decisions about selling, investing, or planning for the future.

In family law proceedings, it is often necessary to obtain a well-supported expert report to establish the fair value of a business. These matters can be particularly complex when one or both parties have ownership interests in a business. Our valuation and litigation support professionals work closely with clients and legal counsel to deliver independent, reliable analyses and are also available to provide expert testimony in court.

Our team provides family support services, including:

• Business Valuation for Asset Division Purposes

A business valuation can be a valuable tool when making decisions about your company’s future. Whether you are planning for retirement or evaluating a purchase offer, a professional valuation provides a comprehensive and well-supported assessment of your organization’s value.

By gaining a clear understanding of your business’s true value, you can make informed, confident decisions about your next steps. Valuation professionals work closely with you to deliver detailed, current analyses that reflect your company’s unique circumstances, ensuring you have reliable information to guide strategic planning and long-term objectives. We can guide you on a wide range of scenarios, including:

• Mergers, Acquisitions, and Divestitures
• Buy/Sell Agreements
• Obtaining Financing
• CRA Estate and Tax Planning
• Shareholder/Partner Disputes
• Shareholder Agreements
• Business Restructuring
• Estate and Gift Tax Purposes
• Due Diligence
• Advisory Services