Questions to Ask for a Business Valuation
These questions are for anyone about to put a business in front of an appraiser or valuation analyst: the owner, or a partner, spouse or heir with a stake in it. The 55 questions run in the order a first meeting tends to go: what the valuation is for, who would do the work, the methods, the records and adjustments behind the number, any discounts, and then the fee and the report. Standards of value, discounts and who has to order the report change with the state, the country and the lender, so several notes point you to your attorney or the lender before you rely on an answer.
The questions
Each question, and why to ask it
Purpose
What is this valuation for, and how does that change the work you would do?
Why ask it
Purpose sets almost everything else: the standard of value, the date, the depth of the report and who has to accept it. A figure worked up for a sale negotiation may be no use in a divorce or an estate filing, so name every use you have in mind now. Stretching a finished report to cover a second purpose usually means paying for new work.
Exactly what is being valued: the whole company, my share of it, or the assets?
Why ask it
A 30 percent stake is not automatically worth 30 percent of the whole company, and selling the assets is a different transaction from selling the shares. The engagement letter should spell out the entity, the percentage and the class of shares or units. If a building or a sister company is held separately, say so, and decide on purpose whether it is in or out.
What date will the business be valued as of, and who decides that?
Why ask it
A valuation is an opinion as of a single day. In a divorce or an estate that day may be set by law or by the court, and in a buyout by the owners' agreement. Where you do have a choice, it is fair to ask how far the figure would move between the dates on the table.
Which standard of value applies here: fair market value, fair value or something else?
Why ask it
Fair market value imagines a willing buyer and a willing seller with neither under pressure. Fair value is usually defined by a statute or an agreement, and investment value is what the company is worth to one particular buyer. One business can come out at quite different figures under each, and which standard governs a divorce or a shareholder dispute depends on where you live, so have the appraiser say what they are relying on and check that with your attorney.
Do I need a full valuation report, or would a cheaper calculation of value be enough?
Why ask it
Some credentialing bodies allow a limited engagement in which you and the appraiser agree the methods up front and you receive a calculated figure, not a full opinion, for a lower fee. That can be plenty for planning or for a first talk between partners. It is money wasted if the court, lender or tax authority you are heading for will only take a full report.
Does our buy-sell or operating agreement already say how the price is set?
Why ask it
Many agreements name a formula, a standard of value or a process with one or more appraisers, and that wording can override what an appraiser would otherwise do. Bring the signed document to the first meeting, amendments included. If the wording turns out to be vague or badly out of date, that is for a lawyer to sort out before the valuation starts, not after a number exists.
Who is your client, and who else will be allowed to rely on the report?
Why ask it
A report written for you may state that nobody else can rely on it, which becomes a problem the day you hand it to a buyer, a bank or your co-owners. The fix costs nothing at the start: every intended reader named in the engagement letter.
Should I hire you myself, or does my attorney or lender need to be the one who engages you?
Why ask it
A bank making a loan often has to order the valuation itself, and attorneys in a dispute commonly retain the expert so that they control what gets shared. The expensive mistake is paying for a report that the person who needs it will not accept. A good appraiser will send you to check with the lender or the law firm before you sign with them.
What happens if something big changes after the valuation date?
Why ask it
As a rule the appraiser weighs what was known or reasonably knowable on the valuation date, so a customer lost a month later may not count. Anything already in motion that day is different: mention the pending contract, the lawsuit, the offer on the table. Courts and tax authorities do not all treat later events the same way, which makes this one to raise for your particular purpose.
The appraiser
What business valuation credential do you hold, and which body issued it?
Why ask it
In the United States the common ones are the ASA, the ABV held by CPAs and the CVA, and in Canada the CBV, each with its own exams and experience requirements. A general CPA license or a real estate appraisal license is not a business valuation credential. The issuing bodies generally keep a member directory, so look the person up afterwards.
Which professional standards will this engagement follow?
Why ask it
You are listening for a named set, such as USPAP, the AICPA's valuation standards or those of the body behind their credential. Those standards say what the report must disclose and what the appraiser may not do, and a reviewer will hold them to it. 'We follow best practice' is not an answer.
How many businesses of my size and industry have you valued, and for what purposes?
Why ask it
Industry knowledge shows in the details: how a dental practice, a contractor or a software firm earns its money and what its buyers pay for. Purpose counts as much, since an analyst who mostly writes estate reports faces a different reader than one who spends the year in divorce courts or deal rooms. Ask for one example they can describe without naming the client.
Is there an attorney, a banker or a past client I could call about your work?
Why ask it
Much of an appraiser's work comes through lawyers, accountants and lenders, so a referral source who has read several of their reports can be a better reference than a single past client. Put two things to whoever you reach: whether the report arrived when promised, and whether it held up when someone pushed on it.
Do you have any relationship with the other owners, the buyer, my spouse or any of their advisers?
Why ask it
Independence is what gives the opinion its weight, so any tie belongs on the table before work starts: a shared accountant, past work for the company, a referral arrangement. A disclosed relationship can often be lived with. One that surfaces later hands the other side an easy way to attack the report.
Is any part of your fee, or any future work, tied to the number you reach?
Why ask it
The professional standards most credentialed appraisers work under bar a fee that depends on the value concluded. The softer versions are the ones to listen for: a success bonus, or the promise of deal work if the sale goes through.
Can you give me a rough range before you have seen the books?
Why ask it
It is the natural thing to ask, and the way it is handled tells you something. A careful appraiser will decline, or offer a wide range with the conditions spelled out, because the figure has not been worked for yet. A confident number on the first call is closer to a broker's free opinion of price: handy when deciding whether to list, but not a valuation.
Have you testified about a valuation, and has a court ever excluded or criticized your work?
Why ask it
Skip this if the report will only ever be read across a negotiating table. If it could end up in front of a judge, an arbitrator or a tax examiner, you want to know how often they have testified, for which kind of client, and whether any opinion of theirs was thrown out or cut down.
Who will actually do the analysis, and whose signature goes on the report?
Why ask it
In many firms a junior analyst builds the model and a credentialed partner reviews and signs. That is normal, but you should know who will interview you, who takes your calls and whose name is on the opinion. Where testimony is possible, the signer needs to have done enough of the work to defend it.
In a dispute, would you act as one neutral appraiser for both sides or as the expert for one?
Why ask it
One jointly hired neutral costs less and produces a single number, while separate experts mean two reports and a gap to argue over. Which is allowed or expected varies by court and by agreement, so treat the appraiser's answer as experience of what has worked in cases like yours and leave the decision to your lawyer.
Methods
Which of the three approaches, income, market and asset, do you expect to lean on for my business?
Why ask it
Most standards expect the appraiser to consider all three and explain why any was set aside. An income approach suits a profitable going concern, a market approach needs decent comparables, and an asset approach tends to matter for holding companies or businesses that barely earn. The reasoning tells you more than the choice does.
If you use an income approach, will you capitalize one year's earnings or forecast future cash flows?
Why ask it
Capitalizing a single normalized year assumes steady growth from here on. A discounted cash flow model is the usual tool for a business that is growing fast, recovering or about to lose something, so if your next three years will not look like your last three, this is the moment to say so.
Whose forecast will you use, and how will you test it?
Why ask it
A discounted cash flow value is only as believable as the forecast under it, and the appraiser usually starts from management's. A common test sets your past budgets against what actually happened, so an owner who has never hit a forecast should expect this one to be marked down.
How will you build the discount or capitalization rate, and what in my business pushes it up?
Why ask it
The rate turns future earnings into today's value, and a small change in it moves the answer a long way. Have them walk through the pieces, especially the company-specific risk premium, which rests on judgment more than any other part. The useful follow-up is what you could show them that would justify a lower one.
Where will your market comparables come from, and how similar are they really to my company?
Why ask it
Private sale databases report deals in thin detail, and public companies are usually far larger and more diversified than an owner-run firm. Three things to pin down: how many transactions they expect to find, how old those are, and how they will adjust for size. A market approach resting on four loosely similar sales deserves little weight.
What do you make of the rule-of-thumb multiples people quote for my industry?
Why ask it
Most trades have one, such as a multiple of revenue or of the owner's earnings. A careful appraiser uses it as a sanity check and no more, since it ignores your margins, your debts and your lease. If their figure lands far from the rule of thumb, get the gap explained, because a buyer or the other side will raise it.
How will you weigh the methods if they give different answers?
Why ask it
When the income approach says one figure and the market approach another, somebody has to decide how much each counts. An unexplained fifty-fifty split is an easy thing for a reviewer to question, so the reason matters more than whether they average, weight or pick one.
Will your number be the value of the whole enterprise, or of the equity after debt?
Why ask it
Enterprise value is the business before debt and cash are counted, and equity value is what is left for the owners. Confuse the two and you misread the number by roughly the size of the company's borrowings. Pin down which one the headline figure is, and which debt and cash balances went into it.
How will you treat assets the business does not need to operate, such as spare cash or property?
Why ask it
Surplus cash, a building, a boat or a loan to an owner are usually valued separately and added on top of the operating business. Tell them about anything on the balance sheet the company could run without. If the real estate gets its own appraisal, settle who orders it and how the two reports fit together.
How do you separate goodwill that belongs to the business from goodwill attached to me personally?
Why ask it
Some of what a business earns may follow the owner out of the door: the reputation, the relationships, the skill. Whether that personal part counts in a divorce depends on the state or country, and in a sale it can affect both price and tax. The evidence is concrete, such as which customers ask for you by name and whether you have signed a non-compete.
Records
What documents do you need from me, and for how many years back?
Why ask it
Expect a request list: several years of financial statements and tax returns, interim figures, debt schedules, leases, customer and payroll detail, and ownership documents. Get it before you sign, so you can judge how long it will take you to assemble. Late or partial records are a common reason a valuation runs over on time and fee.
Which earnings measure will you work from: EBITDA, seller's discretionary earnings or net cash flow?
Why ask it
Smaller owner-run businesses are often measured on seller's discretionary earnings, larger ones on EBITDA, and an income approach usually works from cash flow after tax and reinvestment. A multiple means nothing without the measure it is applied to, which is how two people end up comparing a multiple of one with a multiple of another and never notice.
What adjustments will you make to my reported profit, and what evidence do you need for each?
Why ask it
Normalizing restates profit as a typical owner would see it, taking out one-off costs, personal expenses run through the company and anything that will not recur. Each adjustment moves the value, so each needs an invoice, a statement or an explanation. Bring your own list and go through it together before they go looking.
How will you decide what a market-rate salary for my job would be?
Why ask it
If you pay yourself well under or over what a hired manager would cost, the appraiser swaps your pay for a market figure and profit moves by the difference. Two details decide the size of that swap: the salary source they draw on and the job title they match you to. An owner who does three jobs should say so, because replacing them takes three salaries.
How will you handle rent, loans or pay that passes between the business and the owners or their family?
Why ask it
Rent on a building you own, a loan from a parent or a relative on the payroll may not be at the rate a stranger would agree to, and the appraiser will usually restate them to market terms. Have the leases and loan papers ready, and say which arrangements would end if the company changed hands.
How will you treat a year that was unusually good or unusually bad?
Why ask it
A lost contract, a flood or a one-time windfall can be averaged in, weighted down or left out, and the choice changes the base that everything else is multiplied by. Explain what happened and whether it could happen again. The follow-up is how many years they will use and how each is weighted.
Will you visit the business and interview management, and who do you want to speak to?
Why ask it
Walking the premises and talking to the people who run things is how an appraiser learns what the accounts do not show: the state of the equipment, who really holds the customer relationships. Check that the visit is included in the fee. If the valuation has to stay quiet, agree beforehand how they will be introduced to staff.
If I am not the one running the business, how will you get the information you need?
Why ask it
A spouse, an heir or a minority partner often has no access to the books. What matters is what the appraiser does when requests go unanswered and how the gaps are flagged, because an opinion built on limited information should say so in plain words. Getting records produced formally is your attorney's job, and the rules for it depend on where the case is.
What do you look for when the records may not show everything the business earns?
Why ask it
An appraiser has ways to test reported income: margins against industry norms, deposits against recorded sales, the owner's spending against declared pay. That work goes beyond a standard valuation and may be billed as forensic accounting, by them or by someone they bring in.
How will you keep the financial records I give you confidential?
Why ask it
You will be handing over tax returns, customer lists and payroll. The practical points are whether they sign a confidentiality agreement, how files are sent and stored, and who in the firm sees them. In a dispute there is a second question, and it is for your attorney: how much of what you send the appraiser the other side may be entitled to see.
Discounts
Will you apply a discount for lack of control, and on what basis?
Why ask it
A minority owner usually cannot set pay, declare distributions or sell the company, and under some standards of value a stake like that is marked down for it. Check whether their starting figure is already a minority value, because discounting that a second time counts the same thing twice. Your agreement matters here too: a veto or a board seat is some control, and can narrow the discount.
Will you apply a discount for lack of marketability, and how will you support the size of it?
Why ask it
Shares in a private company cannot be sold in a day, and the discount for that is among the most argued-over figures in a report. Good support is tied to your company: its distributions, its transfer restrictions, its prospects of a sale. A flat percentage offered with no reasoning is an easy target for a tax examiner or an opposing expert.
Does the standard of value in my situation allow those discounts at all?
Why ask it
In some settings, certain divorce and dissenting-shareholder cases among them, the law or the agreement rules these discounts out, and in others they are routine. What a friend's valuation did tells you nothing about yours. Have the appraiser name the authority they are following, and confirm it with your attorney.
If the business depends on one person or one big customer, where does that show up in your number?
Why ask it
A business that leans on its founder or on one account is riskier, and that can be reflected in a higher rate, a lower forecast or a stated discount. It should appear once, not in all three. Tell them what you have done to reduce the risk, such as long contracts, a second in command or a wider customer base.
Would a buyer who gains control or synergies pay more, and is any of that in your number?
Why ask it
A strategic buyer may pay for savings or sales that only it can unlock. That is investment value, which fair market value normally leaves out. Before a sale it is reasonable to request a view of that higher figure alongside the formal conclusion; for a tax or court purpose, expect to hear that it does not belong in the number.
How do you handle taxes for a pass-through company such as an S corporation or an LLC?
Why ask it
Those are United States terms for companies whose profit is taxed in the owners' hands. Whether to deduct a corporate-level tax when valuing one, and how to treat tax that would fall due if appreciated assets were sold, are long-running arguments among appraisers and courts with no single accepted answer. The difference can be large, so hear what they do, why, and how it has gone over with the kind of reader your report is for.
Fee and report
What is the fee, is it fixed or hourly, and what would make it grow?
Why ask it
A simple calculation and a litigated case sit at opposite ends of the price range, so get a fixed quote or a capped estimate into the engagement letter. The usual causes of overruns are messy records, a second entity nobody mentioned and extra rounds of questions. Settle the retainer too, and when the balance falls due.
How long will it take once you have everything you asked for?
Why ask it
The clock usually starts when the last document arrives, not when you sign. Get two dates, one for the draft and one for the final, and tell them any deadline you face, such as a hearing or a closing. On a rush job, the question is what gets less attention.
What do you charge separately for depositions, testimony or answering a tax authority's questions?
Why ask it
Deposition and trial time, meetings with attorneys and replies to an examiner are normally billed by the hour on top of the report fee. Get the hourly rate now, while you can still compare firms. In a dispute this part can end up costing more than the valuation did.
What form will the report take, and can I see a sample with the client's details removed?
Why ask it
Options run from a full narrative report to a short summary or, where the standards allow, an oral one. A sample shows whether a stranger could follow the reasoning from the records to the number, which is the test a reviewer applies.
Will this report meet the requirements of the lender, court or tax authority that is going to read it?
Why ask it
Each reader has its own checklist: a lender may keep an approved list of appraisers, and a tax authority may define who counts as qualified and what the report must contain. The appraiser should be able to name the requirements they are writing to. Then confirm with that reader, or with your adviser, that nothing is missing.
Will I see a draft, and what am I allowed to comment on?
Why ask it
Reviewing a draft for factual errors is normal and useful: a wrong lease date, a misdescribed product line, a missed loan. Pushing on the conclusion itself is different, and in a dispute your comments may be seen by the other side. If lawyers are involved, route your notes on the draft through your attorney.
Which two or three assumptions move the value most?
Why ask it
Every valuation rests on a few inputs that matter far more than the rest, often growth, margin and the rate. Once you know them you can check the ones you understand better than the appraiser does, such as whether a big contract will renew. A sensitivity table, showing the value as each one shifts, is a fair thing to request in the report.
When the report is finished, will you go through it with me and show me what is holding the value down?
Why ask it
A sit-down at the end is not always in the quote, so settle it at the start. For an owner thinking of selling in a few years it can be the most useful hour of the engagement, because the risks that raised the rate or cut the forecast are a list of things to fix.
If the other side hires their own appraiser, where do you expect the two reports to differ most?
Why ask it
They can usually predict it: the forecast, the owner's replacement salary, the rate and the discounts are where two honest reports part ways. Knowing that early tells you which records to strengthen, and the answer doubles as a preview of how they would defend their own position.
How long is the conclusion good for, and what would an update cost?
Why ask it
A conclusion describes one date, and a lender, a buyer or a court may want something fresher after a year or after a big change in the business. Compare the price of an update with the price of starting again. Where a buy-sell agreement calls for regular valuations, a standing arrangement with one firm may come out cheaper.
How to get a business valuation you can rely on
Practical guidance for the conversation itself
Before you contact an appraiser
Write the purpose down in one sentence
'I need a value for my 40 percent share as of the day my partner gave notice, for the buyout our operating agreement describes' tells an appraiser most of what they need to quote. If you cannot write that sentence yet, the questions under Purpose are the ones to settle first, some of them with your attorney and not the appraiser.
Find out who has to order it
For a bank loan, ask the lender whether it must engage the appraiser itself and whether it keeps an approved list. In a divorce or a dispute, ask your attorney whether the expert should be retained through the law firm. For an estate or a gift, ask whoever prepares the filing what the tax authority expects of the appraiser. One phone call at this stage can save paying for the same valuation twice.
Read your own agreements first
Pull out the shareholder, partnership or operating agreement and any buy-sell clause, and mark every sentence that mentions price, value, appraisal or discounts. The appraiser will ask for the document anyway, and it may already settle the standard of value, the date and who picks the appraiser.
Start the document pile early
Three to five years of financial statements and tax returns, the year-to-date figures, a list of debts, the leases and a breakdown of sales by customer cover most first requests. Having them ready shortens the timeline, and an appraiser who can glance at them before quoting will give you a firmer fee.
In the first conversation
Ask for the answer again in plain words
If a reply about capitalization rates or marketability discounts goes past you, say so and have it explained without the vocabulary. You are the one who will carry this number to a partner, a banker or a family member, and an appraiser who cannot make it clear to you across a desk will have the same trouble with a judge or a buyer's accountant.
Put the same handful to two or three firms
Credential, experience with your purpose, likely methods, fee and timeline compare easily across firms, so write the answers side by side. The cheapest quote is often for a narrower engagement: check that each firm is pricing the same kind of report as of the same date.
Tell them the bad news yourself
The customer about to leave, the lawsuit, the year you would sooner forget: all of it should come from you. A report that leaves out something the other side's expert or a buyer's accountant later finds loses credibility on everything else as well. Disclosed early, the same fact is simply one of the inputs.
If you are not the one who runs the business
A spouse, an heir or a minority owner should lead with the questions about access to records, the standard of value and discounts, since from that seat those shape the result most. Bring your attorney's contact details, because much of what the appraiser needs may have to be requested formally.
Which questions matter most, by situation
Before a sale
The valuation is a planning tool here: a buyer will run their own numbers and is not bound by yours. Spend your time on Methods and Records, especially the earnings measure and the adjustments, and ask for a view of what a strategic buyer might pay on top of the formal figure.
A buyout between owners
Start with what the agreement says, then the valuation date and whether discounts apply to the departing stake. Agreeing on one neutral appraiser, and on the questions under Purpose, before anyone sees a number tends to keep the argument shorter.
A divorce
The standard of value, the date, and the treatment of personal goodwill and discounts differ from state to state and country to country, so each of those is a question for the appraiser and your attorney together. Add the testimony questions, and decide early between a joint neutral and separate experts.
An estate or a gift
The reader is a tax authority, so the weight falls on the appraiser's qualifications, the support behind any discounts and how complete the written report is. Ask the adviser handling the filing what date applies and what the report has to include where you are.
A loan
Ask the lender first. Many will accept only a valuation they ordered from an appraiser they chose, and the questions you can usefully put are about what records to supply, how long it takes and whether you will get a copy.
When the report arrives
Check the facts before the figure
Read the company description, the ownership table, the lease terms and the adjusted financials before you turn to the last page. Those are the parts you know better than anyone, and an error there is both easy to fix in a draft and awkward to explain once the report is final.
Find the assumptions that carry it
Look for the growth rate, the normalized earnings figure, the discount or capitalization rate and each discount applied at the end. If you can say in a sentence why each one is what it is, you understand the valuation well enough to discuss it with a buyer, a partner or your attorney.
Do not shop for a number
Ordering a second report because the first came in low rarely helps. A reader who learns there were two will ask why, and in a dispute the earlier one may have to be handed over. If you think the conclusion is wrong, take the specific assumption back to the appraiser with evidence.
Know when it goes stale
The value is tied to its date. A new contract, a lost one, a change in debt or simply a year passing can make a lender, a buyer or a court ask for an update, so keep the engagement letter and the document list where you can find them again.