How to Prepare Your Business for a Valuation

Before You Start: Gather Your Data

The quality of a valuation is directly proportional to the quality of its inputs. Garbage in, garbage out. Here's exactly what you need — and why each item matters.

1. Income Statement (Required)

This is the foundation. Revenue, cost of goods sold, operating expenses, and net income. Ideally 3 years of history, which lets the model identify trends rather than relying on a single snapshot.

**Impact on valuation:** Revenue drives the top-line multiples. EBITDA margin determines how efficiently you convert revenue to cash flow. Growth rate affects the DCF terminal value.

2. Balance Sheet (Required)

Total assets, liabilities, cash, and debt. This is critical for the equity bridge — converting enterprise value to equity value.

**Impact on valuation:** High debt reduces equity value. High cash increases it. The balance sheet also feeds the asset floor methodology, which sets a minimum value based on tangible assets.

3. Cash Flow Statement (Recommended)

Operating cash flow, capital expenditures, and working capital changes. If you don't have one, the engine estimates capex from depreciation and amortization — but real numbers are always better.

**Impact on valuation:** Free cash flow is what DCF actually discounts. Capex-heavy businesses look less valuable under DCF than their EBITDA suggests.

4. Owner Compensation Details (Important for SMB)

Total owner draws: salary, bonuses, benefits, personal expenses through the business. This is essential for SDE-based valuations.

**Impact on valuation:** For businesses under $5M revenue, SDE is the primary metric. Missing owner add-backs can understate your value by 20–40%.

5. Industry Classification (Required)

Your NAICS code determines which comparable companies and industry benchmarks are used. A misclassified business gets the wrong comps, wrong multiples, and wrong margin expectations.

**Impact on valuation:** Getting this right ensures your business is compared to actual peers — not a random cross-section of the economy.

6. Growth Projections (Helpful)

If you have a budget, forecast, or pipeline data, it improves the DCF. Without it, the model uses industry growth rates as a baseline — which may not reflect your specific trajectory.

7. Customer / Revenue Concentration Data (Helpful)

What percentage of revenue comes from your top 5 clients? High concentration is a risk factor that buyers discount for — and the valuation should reflect it.

The Bottom Line

You don't need perfect data to get a useful valuation. Start with what you have — an income statement and balance sheet get you 75% of the way there. Each additional data point narrows the range and increases confidence.