Clarify the Purpose of Your Valuation
Valuations are context-specific. A strategic buyer acquisition, a bank-financed management buyout, and a shareholder dispute each require a tailored approach. Before you run the numbers, document the intended use, reporting standard, and level of assurance needed so that the resulting conclusion of value is defensible.
For owners preparing to sell, the valuation should inform pricing strategy and help you understand the trade-offs between a faster close and maximised proceeds. A realistic price grounded in market data attracts qualified buyers while providing room for negotiation.
Normalise Financial Performance
Buyers focus on sustainable cash flow. Adjust your profit and loss statements to remove one-time expenses, discretionary owner benefits, and non-operating income. This process, often called normalising or recasting, reveals the true economic earnings of the business.
Key adjustments typically include:
- Aligning owner compensation with market rates for replacement management.
- Eliminating personal expenses that run through the company.
- Adding back non-recurring legal, consulting, or relocation costs.
- Normalising rent if real estate is owned by a related entity.
Document each adjustment with supporting schedules and explanations. Doing so builds credibility during due diligence and reduces the likelihood of a last-minute price reduction.
Select the Right Valuation Methods
Private company valuations typically employ three method categories: income, market, and asset approaches. Each provides a different perspective on value, and most professional appraisals triangulate among multiple methods.
Income Approach
Discounted cash flow (DCF) and capitalisation of earnings models convert future cash flow into a present value. They require robust projections, a defensible discount rate, and an understanding of risk-adjusted return expectations in your sector.
Market Approach
Guideline public company and guideline transaction methods benchmark your company against similar businesses. Select multiples based on size, growth, and margin profiles, then adjust for differences in working capital or customer concentration.
Asset Approach
For asset-intensive or distressed businesses, adjusting the balance sheet to fair market value can set a floor price. Ensure you include intangible assets such as customer contracts and proprietary processes when relevant.
Support Your Valuation Story
Numbers alone are not enough. Prepare a narrative that explains revenue drivers, customer retention, and competitive positioning. Highlight investments in technology, management depth, or recurring contracts that justify premium multiples.
Anticipate challenges buyers may raise—seasonality, dependence on a few key accounts, or limited management infrastructure—and demonstrate your mitigation strategies. Transparency builds trust and keeps negotiations focused on the future of the company rather than perceived weaknesses.
Engage Experienced Advisors
Certified valuation analysts (CVAs), CPAs, and investment bankers bring independent perspective and access to proprietary data sources. Their reports lend credibility with lenders and investors, and they can prepare you for the due diligence questions that will follow a letter of intent.
Collaborate early so your advisory team can recommend operational improvements that move the valuation needle before you enter the market. Small enhancements to documentation, reporting, or customer contracts can have a meaningful impact on value.