Getting to the Heart of Business Valuation - III (Checklist of documents & information required)

Previous posts took you through a quick overview of how you can select the right business valuation professional, the various methods of business valuation to begin your planned exit strategy to sell a business.Business Valuations

Let us proceed to have a quick review of the documents and information to be kept ready to conduct a thorough and fair valuation of the business. Also note that all these information will also help the business buyer to conduct due diligence and make the process of selling a business quick and smooth.

Following is a checklist of documents and information that professional business advisors ask prior business valuation:

Financial Statements:

  • Balance sheets, income statements, statements of changes in financial position, and statements of stockholders’ equity or partners’ capital accounts for up to the last five fiscal years, if available.
  • Income tax returns for the same number of years.
  • Latest interim statements if valuation date is 90 days or more beyond end of last fiscal year and interim statement for the comparable period the year before.
  • Prepare a list of subsidiaries and/or financial interests in other companies (if any) along with relevant financial statements of such a company.
  • Equipment list and depreciation schedule.
  • Aged accounts receivable list.
  • Aged accounts payable list.
  • List of prepaid expenses.
  • Inventory list, with any necessary information on inventory accounting policies (including work in progress, if applicable).
  • Lease or leases (if lease does not exist or is not transferable, determine what new lease or rental terms will be).
  • Any other existing contracts (employment agreements, covenants not to compete, supplier and franchise agreements, customer agreements, royalty agreements, equipment lease or rental contracts, loan agreements, labor contracts, employee benefit plans, etc.
  • List of stockholders or partners, with number of shares owned by each or percentage of each partner’s interest in earnings and capital.
  • Compensation schedule for owners, including all benefits and personal expenses.
  • Schedule of insurance in force (key-man life, property and casualty, liability).
  • Budgets or projections, if available.
Company Documents
  • If a Corporation, articles of incorporation, by-laws, any amendments to either, and corporate minutes.
  • If a Partnership, articles of partnership, with any amendments.
  • List of existing buy/sell agreements, options to purchase stock or partnership interest, or rights of first refusal.

Other Information
  • Brief history and details of any changes in ownership and/or bona-fide offers received.
  • Brief description of business which includes position as compared to competitors and any factors that make the business unique.
  • Marketing literature (catalogs, brochures, advertisements, etc.)
  • List of locations where company operates, with details provided in terms of size, and whether owned or leased.
  • List of states in which the company is licensed to do business.
  • If customer or supplier base is concentrated, list of major accounts, with annual dollar volume for each.
  • List of competitors, with location, relative size, and any other relevant factors.
  • Resumes of, or list of, key personnel, with age, position, compensation, length of service, education and prior experience.
  • List of memberships with Trade associations or would be eligible for membership.
  • Information of relevant trade or government publications which features the company.
  • Collect existing indicators of asset values, including latest property tax assessments and any appraisals that have been done.
  • List of patents, copyrights, trademarks, and other intangible assets.
  • Any contingent or off-balance-sheet assets or liabilities (pending lawsuits, compliance requirements, warranty or other product liability, etc.)
  • List of any filings or correspondence with regulatory agencies regarding issues related to business.
  • List out major highlights of prior business transactions.

Don’t get bogged down by the long list. If you hire a professional business valuation firm they will already have a team of staff to help you gather all the relevant paper work to ensure business sale is smooth and favorable of the business seller. Next post we will discuss the business valuation process in brief.

Disclaimer: This blog is for information purpose only. It is intended to discuss in brief about commonly followed practice or industry-known principles, Applicability of this information is subject to change from time-to-time or might differ from case-to-case basis. Readers are requested to verify their case facts with a qualified Business Valuation professional.

1 comments

Anonymous said...

Great info here. Is there a software than can help with the number crunching?

Phil
www.businessbrokerboard.com