Business Valuation
What Is My Business Worth? Why Most Owners Are Guessing, and What a Valuation Changes
Most owners carry one number in their head and have never had it tested. Here is how a business is valued, what the range tells you, why concentration is the number behind the number, and what a pro bono valuation opens across Legacy, Business and Personal planning.
The short answer
A private business is valued by combining three approaches, asset, income and market, into a defensible range. Most owners have never had that done; they carry one number, usually at or above the top of the range, and most of their net worth sits in that illiquid asset. A valuation replaces the guess with a range you can plan around, and it opens the three questions that matter: Legacy, Business and Personal.
Why most owners have never had a valuation
Owners get a valuation when they are forced to: a sale, a buy-in, a divorce, a bank covenant, an estate. By then the number is set by someone with a reason to guess low, on a timetable the owner did not choose. In between, the business is the single largest asset on the balance sheet and the only one nobody prices.
The three ways a business is valued
| Approach | What it asks | Where it matters most |
|---|---|---|
| Asset | What are the assets worth, net of liabilities? | Asset-heavy companies; a floor for any business |
| Income | What are future cash flows worth today, discounted for risk? | Most operating companies; the discount rate is where risk shows up |
| Market | What have comparable businesses sold for? | Industries with enough transactions to compare against |
A credible valuation uses all three and explains why it weights them the way it does. The output is a range, not a point, and the width of that range is itself information: it tells you how much uncertainty a buyer, a lender or an estate would price in.
What the range tells you
For a company that has never been valued, the range is often wide, and the owner’s number usually sits at or above the top of it. That gap is not a judgment on the business. It is the sum of discounts the owner never had to see: dependence on the owner, revenue that rides on one or two customers or key people, partner agreements that are missing, outdated or a handshake, and financials that would not survive a buyer’s diligence. Each is fixable. None gets fixed while it is invisible.
Concentration: the number behind the number
Ask what share of your net worth is equity in the business, and what share is liquid. For most owner-operators the first number dominates. That is not a problem until a liquidity need arrives: a loan called, a building to buy, a partner who wants out, a death. Each can demand cash from the thin liquid slice on a day nobody chose, at a price nobody checked. A valuation is the first step in sizing that risk; funding a buy-sell or a key-person gap is the second.
The illiquidity figures you see in presentations are illustrative. Yours come from your own balance sheet, which is exactly why the valuation is done on your financials, not on an industry average.
What a valuation opens: Legacy, Business, Personal
- Legacy: succession, estate liquidity, buy-sell structure, and whether heirs inherit a business or a forced sale.
- Business: what protects the value today: key-person concentration, agreements, and the gap between what the business is worth and what is funded to protect it.
- Personal: how the business connects to your own balance sheet and retirement income, and the tax side: whether the federal solar credit fits your liability, along with every other deduction or credit your situation may support, each confirmed with your CPA.
That is the point of doing the valuation first and pro bono. It is the one number almost no owner knows, and the one that makes the other conversations concrete. Your CPA and attorney keep their seats throughout; the valuation team is one seat at a twelve-seat table.
What to bring
- Three years of financial statements and tax returns for the business.
- Your entity documents and any partner, buy-sell or key-employee agreements.
- A list of your top customers and the share of revenue each represents.
- Any prior valuation, offer or appraisal, however old.
Go deeper: how Longtable approaches Business Valuation.
Illustrative examples. Confirm the specifics for your situation with your own CPA or attorney.