What happens during a business valuation, step by step?

Owners are often surprised by how much of a valuation is preparation and conversation rather than arithmetic. Knowing the order helps you plan your time and your records. The details vary with the firm and the purpose, but most engagements follow the same path, and each step depends on the one before it.

Setting the engagement

The first step is an engagement letter. It states the purpose of the valuation, the date as of which the business is valued, the kind of report, who may rely on it, and the fee basis. A clear purpose matters because the same business can be looked at differently for a sale, a partner buyout or a financing request.

Documents, interview and site visit

Next comes a document request: financial statements, tax filings, contracts, leases, customer and supplier information, and records of equipment. The valuator then interviews management and usually visits the premises. Be candid about weaknesses. A problem you mention early is easier to handle than one found later, and it keeps the analysis credible.

Normalizing and choosing methods

The valuator adjusts reported earnings to show what a typical owner would earn, removing one-off items and setting an owner’s pay at a realistic level. Then one or more methods are chosen, such as the market approach, and the results are cross-checked against each other.

Draft, review and final report

Many firms share a draft so you can correct factual errors, such as a wrong date or a missing contract. That is a check on facts, not a chance to negotiate the conclusion. The final report follows, and you can ask the valuator to walk you through it.