Sarah spent the last 25 years building her family-owned manufacturing company. She started small, working out of a rented garage, and through dedication and smart decision-making, she grew it into a thriving business with 50 employees and millions in annual revenue.

However, as Sarah approached retirement, she faced a dilemma: What was her business truly worth? While she had received a few informal offers from competitors, she had no idea if they were fair. Without a proper valuation, she risked either selling for too little or overpricing the company and scaring off potential buyers.

Whether you’re preparing to sell your company, planning for succession, or securing financing, understanding your business’s worth is crucial. The process of a business valuation provides a clear picture of what your company is worth and helps you make informed financial decisions.

Sarah decided to work with a financial advisor whose firm also had the capability of handling business valuations.

1. Understand the Purpose of Valuation
   The first step is defining the reason behind the valuation. For example, valuations for investment purposes may differ from those required for litigation or tax planning. The purpose dictates the methodology and level of detail required.
2. Gather Financial Data
   Your company’s financial information is the foundation of any valuation. This includes income statements, balance sheets, tax returns, assets and liabilities, etc.
3. Analyze the Market and Industry
   Analysts consider the market and industry dynamics in which the business operates. Key factors include market trends, industry competition, barriers to entry, and economic conditions.
4. Assess the Business’s Assets
   Tangible assets (such as equipment, inventory, and property) and intangible assets (like intellectual property, brand reputation, and customer goodwill) are critical components of a valuation.
5. Choose a Valuation Method
   There are several commonly used valuation methods, and the right one depends on the business type, size, and purpose of valuation. Here are the main methods:
   • Income Approach: Determines a business’s value based on the present value of its expected future earnings or cash flow.
   • Market Approach: Looks at comparable companies measured against the subject.
   • Asset-Based Approach: Net assets of a company (assets minus liabilities) are revalued to current values.

Adjust for Risk Factors / Applying Discounts
Every business carries inherent risks, and valuation experts consider factors such as: Competition and market saturation, management team experience, etc. Valuations may also be discounted to reflect real-world limitations such as lack of marketability or lack of control.

To Sarah’s surprise, the valuation revealed that her business was worth more than she originally estimated. Many of her competitors had based their offers on outdated industry multiples, not considering her firm’s strong recurring revenue and niche market position.

Without a professional valuation, Sarah might have left money on the table—or worse, accepted a deal that didn’t align with her financial goals. Instead, she walked away with a well-structured sale, a clear path to retirement security, and the confidence that she had made the best decision for herself and her employees.

Whether you’re selling, merging, or planning for the future, knowing the true value of your business can be a game-changer.