• Michael Shaw

Why and How to get a Business Valuation Done

You only get one chance to sell your business, so make it count.

As part of the exit planning process and before you start a sale process of your business, it is helpful to complete a business valuation, in which an advisor analyzes all aspects of your financials and operations to estimate what a third party might be willing to pay for it.

In this article, we will explore the ins and outs of business valuations and provide scenarios when it makes sense to have one done.

When to do a business valuation

Over the last several years, business valuations have become more relevant as a wave of retirement-age baby boomers look to transition ownership of their business.

If you are considering selling your business, having a valuation done is helpful in order to understand the market and industry dynamics, company-specific dynamics that affect the valuation and what can be done to potentially increase the valuation. It is also critical from an exit-planning and wealth-management perspective, as any seller should understand what their post-transaction lifestyle may look like.

A business valuation is a great way to protect against anything unexpected and potentially damaging. For example, the sudden death of a business partner or the need for an equity investment can make a business valuation worthwhile. Getting a valuation done every five years or so can serve to prepare you for a variety of unexpected circumstances.

Additionally, completing a valuation helps to prepare for an unsolicited offer to buy the business. With a ballpark number in mind for what your business is worth, you will know whether to engage in discussions with a potential buyer. This is even more relevant in today’s hot M&A environment.

Other circumstances in which business valuations are needed include setting up an Employee Stock Ownership Plan (ESOP), valuing pensions and raising investment capital.

How valuations are done

At Copper Run, we begin the valuation process with an introductory call, then follow up with a due diligence request list. As M&A advisors, we use quantifiable metrics while also getting to know executives and understanding the company’s strengths, weaknesses, opportunities and threats.

When putting together our valuation, we leverage several valuation methodologies, including market comps, precedent transaction comps, leverage buyout analysis (LBO) and a discounted cash flow analysis (DCF).

Market comps take into account how public companies are trading and then applies a discount to most privately held middle market companies. Precedent transaction comps analyze recently completed transactions involving a middle market seller. Both of these methodologies help to provide an owner with an accurate picture of where the market stands.

Conversely, the LBO and DCF methodologies are more inwardly focused, looking at specific dynamics of the business. An LBO considers what a buyer might be willing to pay with a mix of debt and equity, accounting for the leverage the company can accommodate and the returns it would be seeking with such an investment. A DCF analysis looks at both current and projected future cash flows in coming up with an estimated present value.

In addition to these methodologies, experienced M&A advisors are able to leverage private equity industry contacts to gauge the going rate for similar businesses.

Capping off the roughly month-long process, we provide a 15-page deliverable that sets a valuation range, explains the inputs to the valuation and details the process.


There are many reasons to have a valuation done. Regardless of the purpose, we recommend planning ahead and completing them regularly.

Whether you are looking to sell your business, set up an ESOP, or just prepare for the unexpected, consider getting a business valuation done. You can never have too much information about your business.

Tim Brady is a Vice President at Copper Run. He specializes in serving middle market companies in technology, business services, and manufacturing.

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