How to read a business valuation report

Owners who commission a valuation, or receive one from a buyer, broker or lender, often skip straight to the final number and treat everything else as boilerplate. That is a mistake. The number is only as good as the reasoning behind it, and a report that states a figure without clearly showing its work is far easier to challenge — by a buyer, by CRA, by a co-owner in a dispute — than one that documents every assumption. Learning to read the substance of a report, not just its conclusion, is what lets you actually rely on it.

Start with what kind of report it actually is

Not every document called a "valuation" is built to the same standard. A business broker’s opinion of value is typically an informal estimate, often provided without charge as part of pitching for a listing, and it is not built to withstand serious scrutiny. A formal report from a Chartered Business Valuator follows recognized professional standards and is meant to hold up in litigation, tax matters or shareholder disputes. Before you read anything else in the document, confirm which kind you are holding — the level of rigour you should expect, and how much weight the number can bear, depends entirely on that answer. A report used to support a family transfer, an estate freeze or a shareholder buyout generally needs the formal standard; a first read before deciding whether to list at all can often work from something lighter.

Check which method was used and whether it fits the business

A credible report states plainly whether it relied on an income approach, an asset approach, a market approach, or some combination, and explains why that method fits this business. A report that applies an earnings multiple to a capital-intensive, asset-heavy business without explaining why — or one that never mentions considering an alternative method — is worth questioning. The choice of method should follow logically from what kind of business this is, not simply be the method the writer defaults to.

Read the normalization adjustments line by line

Every earnings-based valuation starts from reported financial statements and adjusts them — adding back owner compensation, personal expenses, one-time items — to reach a normalized earnings figure. This is the section most worth your attention, because it is where judgment enters the calculation and where the number is most easily inflated. A well-built report lists each adjustment individually with a stated reason, not a single lump "normalization" figure with no breakdown. If you cannot see what was added back and why, ask for the detail before accepting the resulting figure.

Look for the assumptions section, and take it seriously

A rigorous report states its underlying assumptions explicitly — the growth rate assumed, the discount rate used if a cash-flow method was applied, the multiple selected and the reasoning behind selecting it rather than a higher or lower number in the same general range. A report that presents a multiple with no stated reasoning for where in the range it landed is giving you a conclusion, not an analysis. Ask the valuator directly why this business sits where it does in the range, rather than accepting the number as self-evidently correct.

Check what the report says about risk

A thorough valuation discusses the specific risk factors of the business being valued — owner dependence, customer concentration, industry conditions, the strength of the lease if the business is not mobile — and explains how those factors influenced the number. A generic report that could describe almost any business in the sector, with no reference to this business’s specific circumstances, is a signal the analysis is thinner than the page count suggests.

Questions worth asking the valuator directly

A conversation with the person who prepared the report tells you more than a second read of the document. Ask what data they relied on and whether they verified any of it independently, why they chose this method over the alternatives, what would change the number materially, and how confident they are in the figure versus how much of it is a judgment call. A valuator who answers these clearly, without retreating to jargon, has usually done careful work; one who cannot explain their own reasoning plainly is a reason for caution regardless of how polished the report looks. Keep a written record of these answers alongside the report itself — if the valuation is ever challenged later, that record of reasoning is often as useful as the report’s formal conclusion.

• Confirm whether it is an informal opinion of value or a formal professional report
• Identify the method used and why it fits this specific business
• Read every normalization adjustment individually, not just the total
• Check for a stated assumptions section, not just a headline number
• Ask the valuator directly what would change the figure and by how much