What Documents Are Needed for a Business Valuation?

Many business owners assume that obtaining a business valuation will require an overwhelming number of documents.

In most cases, it does not.

A business valuation generally begins with a manageable set of financial information, details about the company and its ownership, proposed adjustments to reported earnings, and an interview with the owner or management.

The exact documents needed for a business valuation depend on the company, the purpose of the valuation, the ownership interest being valued, and the type of report being prepared. A valuation for the potential sale of an entire business may require different information from a certified valuation involving a partnership buyout, divorce, gift, estate, or shareholder dispute.

For many engagements, the initial information can be organized into four primary categories:

Historical financial statements or business tax returns
Current financial information
Information about the business and its operations
Proposed financial adjustments and supporting explanations

Additional documents may be requested when they are relevant, but owners should not assume that every valuation requires an extensive due diligence process.

Why Is Financial Information Needed for a Business Valuation?

A business valuation is based in large part on the company’s expected financial benefits and the risks associated with receiving those benefits.

Historical financial informationhelps the valuation professional understand:

Revenue and profitability
Financial trneds
Normalized earnings
Changes in margins
Working capital
Assets and liabilities
Debt and cash
The consistency of the company's performance
Whether recent results appear representative of ongoing operations

The financial records also provide a foundation for applying appropriate valuation methods.

Under the income approach, the valuation professional may estimate the present value of the company’s expected future financial benefits.

Under the market approach, financial measures such as revenue, seller’s discretionary earnings, or EBITDA may be compared with data from sales of privately held companies.

The documents provide the starting point, but they are only part of the analysis. The valuation professional must also understand what occurred during the periods presented, why the results changed, and whether the company’s historical performance is reasonably expected to continue.

1. Historical Financial Statements or Business Tax Returns

The primary financial requirement is generally three to five years of either:

Business financial statements, or
Business tax returns

BizWorth does not ordinarily require both financial statements and tax returns for the same periods, and we do not reconcile the two as a standard part of a valuation engagement.

Which source is preferred depends partly on the purpose of the valuation.

When Financial Statements Are Preferred

For most valuation purposes, financial statements are preferred because they generally contain more detail than business tax returns.

Financial statements commonly include:

Income statements, also called profit and loss statements
Balance sheets

The income statements show the company’s revenue, expenses, and profitability over time. The balance sheets provide information about the company’s assets, liabilities, and equity as of each reporting date.

Financial statements may also provide account classifications that make it easier to understand the company’s operations and identify trends.

They are generally preferred for valuations involving:

Strategic planning
Succession planning
Partner of shareholder buyouts
Divorce
Litigation
Gift and estate planning
Ownership transfers
Preiodic valuation updates
Internal business planning

Financial statements may be internally prepared, compiled, reviewed, or audited. Many privately held businesses do not have audited financial statements, and audited statements are not required for every business valuation.

The valuation professional considers the source and nature of the financial information when developing the analysis.

When Business Tax Returns Are Preferred

Business tax returns are often preferred when the valuation relates to the potential sale or purchase of a business.

Buyers and lenders frequently rely on tax returns because they provide financial information that has been reported to a taxing authority. A valuation intended to help an owner evaluate a potential sale may therefore use the same general financial source that buyers and lenders are likely to review.

Depending on the company’s tax classification, the relevant return may include:

Form 1120
Form 1120-S
Form 1065
Schedule C

Only the business returns are generally needed. Personal tax returns are not part of BizWorth’s standard business valuation process.

The owner does not ordinarily need to submit both tax returns and financial statements. BizWorth determines which source is most appropriate based on the purpose of the valuation and the information available.

Why Are Several Years Reviewed?

A single year may not represent the company’s ongoing earning capacity.

A business may experience:

An unusually strong year
A temporary decline
A major customer gain or loss
A new location or service line
An economic disruption
An unusual expense
A change in ownership or management
Significant growth or contraction

Reviewing three to five years allows the valuation professional to identify trends and evaluate whether the most recent period is representative.

For example, assume a business generated pretax income of:

$300,000 in Year 1
$375,000 in Year 2
$450,000 in Year 3
$625,000 in Year 4
$700,000 in Year 5

The historical results show meaningful growth. The valuation professional would consider what caused that growth and whether it is expected to continue.

Now assume another company reported:

$600,000 in Year 1
$625,000 in Year 2
$575,000 in Year 3
$350,000 in Year 4
$275,000 in Year 5

Using only an average of the five years could overstate the company’s current earning capacity if the decline is expected to continue.

The goal is not simply to calculate an average. It is to understand the company’s financial history and develop a supportable view of its expected ongoing performance.

2. Current Financial Information

Historical year-end records may not reflect what is happening in the business today.

When the valuation date falls after the company’s most recent fiscal year-end, BizWorth generally requests:

A current year-to-date profit and loss statement
A balance sheet as of the same date

The profit and loss statement and balance sheet should cover the same ending date. This helps ensure that the current financial information is internally consistent and reflects the company’s position at a common point in time.

Why a Month-End Date Is Preferred

A business valuation can have an effective date in the middle of a month. However, the company’s accounting records are usually not reconciled during the middle of a month.

For this reason, a recent month-end date is generally used as a reasonable financial proxy for a mid month valuation date.

For example, if the valuation date is July 18, the company may provide financial statements as of June 30 or another appropriate month-end date close to the valuation date.

The profit and loss statement would cover the period from the beginning of the fiscal year through June 30,and the balance sheet would also be dated June 30.

Using a reconciled month-end period generally provides more reliable information than requesting financial statements for an arbitrary date in the middle of the month.

Comparing Current Results

The valuation professional may compare the current period with prior years to understand whether the company is:

Growing
Declining
Maintaining consistent performance
Experiencing margin changes
recovering from an unusual event
Entering a different stage of operations

For seasonal businesses, the current period should be interpreted carefully. Partial-year results should not automatically be annualized without considering when the company normally generates its revenue and expenses.

3. Business Information and Intake Forms

Financial statements show the company’s reported results, but they do not fully explain how the business operates or why those results occurred.

For this reason, BizWorth uses detailed business intake forms to collect information about the company.

The information may include:

Company history
Products and services
Locations
Industry and geographic markets
Ownership
Management
Employees
Customers
Suppliers
Competition
Growth opportunities
Business risks
Owner responsibilities
Recent operational changes
expectations for the future

The intake process is designed to gather relevant information without requiring the owner to assemble every possible document in advance.

Owners should answer the questions as completely and accurately as possible. When a question does not apply, it can generally be identified as not applicable rather than supported with unnecessary documentation.

4. Proposed Financial Adjustments

Privately held businesses often report income or expenses that may not reflect normal ongoing operations.

Potential adjustments may include:

Owner compensation above or below market
Personal expenses paid by the company
Compesation paid to family members
Related-party rent above or below market
Unusual legal or professional fees
Certain nonrecurring expenses
Gains or losses from asset sales
Income or expenses associated with non-operating assets

Owners and management are generally responsible for identifying the personal, discretionary, nonbusiness, unusual, and nonrecurring transactions they want considered.

The valuation professional then evaluates whether each proposed adjustment is reasonable and appropriate.

What Evidence May Support an Adjustment?

Supporting information depends on the nature of the adjustment.

Examples may include:

A payroll report
An invoice
A reciept
A lease
A contract
An account detail report
A relevant portion of the general ledger
A written explanation
Documentation of a legal settlement
Evidence that an expense has ended
Information supporting market compensation or rent

BizWorth does not collect the company’s complete general ledger as a standard requirement. However, a client may provide relevant general ledger detail or other documentation as evidence for a particular adjustment.

For example, if an owner identifies $25,000 of personal travel included in the company’s financial statements, supporting account detail may help show where the expense was recorded and how the amount was calculated.

If supporting evidence is unavailable, the owner may still provide the proposed adjustment and an explanation. The owner or management remains responsible for the accuracy and completeness of the information submitted.

The absence of documentation does not automatically mean an adjustment will be rejected, but it may affect how the adjustment is evaluated and the level of reliance that can reasonably be placed on it.

Not Every Adjustment Is an Add-Back

Normalization is not simply the process of increasing earnings.

Some adjustments may decrease earnings.

For example:

An owner may be paid less than market compensation
A family member may perform unpaid work
Related-party rent may be below market
The business may need additional management after the owner leaves
A nonrecurring gain may have increased reported income

A credible valuation considers both favorable and unfavorable adjustments.

The article “EBITDA vs SDE Multiples: What Buyers Use to Value a Business” provides a more detailed explanation of how these adjustments may affect value.

5. Owner or Management Interview

An owner or management interview is an important part of BizWorth’s valuation process.

The interview gives the valuation professional an opportunity to discuss:

The company's history
Financial trends
Proposed adjustments
Recent changes
Customer relationships
Management and employees
Competition
Industry conditions
Risks and opportunities
Expected future performance

The interview can also resolve questions that might otherwise require additional documents.

For example, the financial statements may show a significant increase in payroll. Management may explain that the company hired employees in advance of opening a new location. That information provides context for both the historical results and the company’s expectations.

Similarly, a revenue decline maybe temporary, or it may reflect the loss of a significant customer. The financial statements show the decline, but the owner or management explains its cause and likely duration.

What Additional Documents Might Be Requested?

Some valuations require additional information, but these requests depend on the facts of the engagement.

Possible supplemental information may include:

An accounts rececivable aging repor
Inventory information
Fixed asset schedules
Debt statements
Details supporting cash or other balance sheet accounts
Customer revenue information
Contracts or leases
Budgets or forecasts
Prior offers or ownership transactions
Governing agreements
Documents supporting specific financial adjustments

These items are not automatically required for every valuation.

They may be requested when a balance is significant, an issue requires clarification, or the information is particularly relevant to the purpose of the valuation.

For example, an accounts receivable aging report may be helpful if the balance sheet includes a significant receivable balance and there are concerns about collectability. Detailed debt information may be requested when the classification or terms of a liability affect the analysis.

The valuation professional should focus the request on the information needed to understand the company, not burden the owner with unnecessary documentation.

When Are Ownership and Governing Documents Needed?

Ownership documents are not generally required when the valuation relates to the potential purchase or sale of 100% of the business and there is no question about the ownership being valued.

They may become important in certified valuations involving:

A partner or shareholder buyout
Divorce
A shareholder dispute
Gift and estate planning
A partial ownership transfer
Litigation
A buy-sell agreement

Relevant documents may include:

Operating agreements
Partnership agreements
Shareholder agreements
Buy-sell agreements
Amendments
Ownership schedules
Prior transfer or redemption agreements

These documents can help establish the ownership percentage, voting rights, transfer restrictions, valuation provisions, and other characteristics of the interest being valued.

A 25% ownership interest may require different analysis from the sale of 100% of the operating business. The purpose, standard of value, governing documents, and characteristics of the ownership interest all matter.

Are Customer Lists and Contracts Required?

Detailed customer information is not automatically required for every engagement.

The intake forms may ask about customer concentration, recurring revenue, major relationships, and the company’s dependence on specific customers.

Additional customer information may be requested when concentration is significant or when a major customer relationship materially affects expected performance.

That information might include:

Revenue attributable to a major customer
The length of the relationship
Whether a contract exists
Significant termination or renewal terms
Recent changes in purchasing activity
Management's expectations for the relationship

The objective is to understand material customer risk, not to require the owner to prepare an extensive customer due diligence package.

For more information, “How Customer Concentration Affects the Value of a Business” explains why two companies with the same earnings may have different values when their customer risks differ.

Do Different Valuation Purposes Require Different Information?

Yes. The valuation’s purpose influences the information required.

Selling or Buying a Business

For a potential sale or purchase, business tax returns are often preferred because buyers and lenders commonly rely on them.

The analysis may focus on:

Historical financial performance
Normalized earnings
Recent results
Owner involvement
Customer concentration
Business risks
Assets and liabilities relevant to the transaction

Owners preparing for a future sale may also benefit from “Business Valuation for Exit Planning: What Owners Should Know Before a Sale.”

Succession or Strategic Planning

For succession or internal planning, detailed financial statements are generally preferred.

The analysis may consider how the company’s value supports the owner’s goals, whether a value gap exists, andwhich factors may be limiting value.

Certified Valuation Matters

Certified valuations for divorce, litigation, gift and estate planning, shareholder disputes, or partner buyouts may require additional documentation.

Depending on the matter, the valuation professional may need to review governing agreements, ownership records, legal documents, prior transactions, or other information relevant to the specific interest and valuation purpose.

These engagements may also require a defined valuation date, standard of value, and reporting scope.

How Can Owners Make the Process Easier?

Owners can help make the valuation process more efficient by:

Providing three to five years of either financial statements or business tax returns, based on the valuation's purpose.
Providing a current profit and loss statement and balance sheet through the same recent month-end date.
Completing the business intake forms as accurately and throughly as possible.
Identifying proposed financial adjustments and explaining how each amount was calculated.
Providing reasonable support for material adjustments when available.
Disclosing significant recent changes in customers, management, ownership, or operations.
Participating in the owner or management interview.
Responding to focused follow-up questions when additional information is needed.

Documents should be provided through the valuation firm’s secure portal rather than ordinary email when possible.

The owner does not need to anticipate every question or upload every company record. The valuation professional can request supplemental information if a particular issue requires further analysis.

Frequently Asked Questions

Do I need both tax returns and financial statements?

Generally, no. BizWorth ordinarily requests either financial statements or business tax returns for the historical periods, not both.

Financial statements are generally preferred because they contain more detail. Business tax returns are often preferred for potential business sales and purchases because buyers and lenders frequently rely on them.

How many years of financial information are needed?

A valuation commonly reviews three to five years of historical financial information, along with current year-to-date results when the valuation date is after the most recent year-end.

What current financial statements should I provide?

Provide a current year-to-date profit and loss statement and a balance sheet as of the same date. A recent month-end date is preferred because the accounting records are generally reconciled after the month closes.

Do I need to provide a general ledger?

No. BizWorth does not collect the complete general ledger as a standard requirement. Relevant general ledger detail may be provided as evidence for a proposed adjustment or requested if a particular issue requires clarification.

Do I need audited financial statements?

No. Many privately held businesses do not have audited statements. Internally prepared, compiled, reviewed, or audited financial statements may be used, depending on the engagement.

What if I cannot document an adjustment?

Provide the best available explanation and support. The owner or management is ultimately responsible for the accuracy and completeness of the information submitted. The level of available support may affect how the adjustment is evaluated.

Will I need to provide contracts, customer lists, and debt statements?

Not necessarily. These documents may be requested if they are relevant to a material issue, but they are not standard requirements for every valuation.

Are ownership documents required?

Usually not for the potential sale or purchase of 100% of the business. They may be required for certified valuations involving a partial ownership interest, partnership transaction, divorce, gift, estate, shareholder dispute, or litigation.

Bringing It All Together

The information needed for a business valuation is usually more manageable than many owners expect.

For most engagements, the process begins with:

Three to five years of financial statements or business tax returns
A current profit and loss statement and balance sheet through the same month-end date
Completed business intake forms
Proposed financial adjustments and available support
An owner or management interview

Additional documents may be requested when they are relevant, but an owner does not ordinarily need to assemble an extensive due diligence package before beginning the valuation.

The purpose of the valuation determines which financial source and supplemental information are most appropriate. Financial statements are generally preferred because they provide more detail, while business tax returns are often preferred for potential sales and purchases because buyers and lenders commonly rely on them.

At BizWorth, our goal is to collect the information needed to understand the company without making the valuation process unnecessarily burdensome. We use the company’s financial information, detailed intake forms, and owner or management interview to evaluate its performance, normalized earnings, operations, growth, and risks.

Whether you are considering a sale, succession plan, ownership transfer, partner buyout, or another important business decision, a professional business valuation can provide a supportable understanding of value without requiring you to navigate the process alone.