Preparing for a business valuation

Financial.

• — Three to five years of financial statements — income statements and balance sheets
• — The same years of federal tax returns, with all schedules
• — Year-to-date interim financials
• — Debt schedule: every loan, line, and lease, with terms
• — Fixed asset listing with purchase dates and any recent appraisals
• — Aged accounts receivable and payable

Operational.

• — Organizational chart and ownership table — who owns what, exactly
• — Operating, partnership, or shareholder agreements, including any buy-sell provisions
• — Revenue by customer (top ten) and by service line or product
• — Compensation detail for owners, family members on payroll, and key employees
• — Material contracts, leases, and vendor agreements
• — Any prior valuations, appraisals, or offers received

Healthcare practices, additionally: provider productivity (wRVU) reports, payer mix and collections by payer, fee schedules, and provider employment agreements. More on the specifics at medical practice valuation.

Incomplete data doesn't just slow the work — it forces conservative assumptions. In valuation, what can't be verified gets discounted.

1. Clean books. If the financials and the tax returns tell different stories, reconcile them first — every reader of the valuation will run that comparison, starting with us.

2. Personal expenses, identified. The vehicle, the travel, the family member on payroll — these are normal in closely held businesses and adjustable in a valuation, but only if they're identified and quantified. Undisclosed ones found later undermine everything disclosed earlier.

3. Related-party arrangements, documented. Rent paid to your own real estate entity, services from an affiliated company — get the terms in writing and know what market rates would be. The valuation restates these to arm's length.

4. A concentration answer. If one customer is 30% of revenue or one person produces half the work, have the real story ready: contract terms, relationship history, succession coverage. Concentration discounts shrink when the risk is documented and managed — they grow when the question gets a shrug.

5. The story of the trend. Revenue up or down, margins moving — know why, specifically. "COVID year," "lost a contract, replaced it in eight months," "invested ahead of growth" are analyzable. Unexplained variance reads as risk.

• — Don't re-engineer the books on the eve of the valuation. Sudden reclassifications and last-minute add-backs are visible, and they convert a routine adjustment into a credibility question.
• — Don't hold back bad facts. The pending dispute, the expiring contract, the regulatory letter — they will surface, and a valuation that ignored them is worthless precisely when you need it. Disclosed early, most bad facts cost less than owners fear.
• — Don't anchor on a number first. A valuation built backward from a target is an advocacy document, and sophisticated readers — buyers, the IRS, opposing counsel — recognize one on sight.
• — Don't wait for the triggering event. The best time to know what the business is worth is before the offer, the dispute, or the estate deadline — when there's still time to act on the answer.