DorisMorris

Preparing Your Business for Valuation

Maximize your business value with strategic preparation. Learn the essential steps to take 6-12 months before a valuation to ensure you get the highest possible value for your company.

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Why Preparation Significantly Impacts Your Valuation

Increase Valuation by 15-30%

Well-prepared businesses typically receive valuations 15-30% higher than unprepared ones. Strategic improvements to financials, operations, and documentation create substantial value.

Faster Transaction Process

Organized businesses with clean records close transactions 30-50% faster, reducing deal risk and preserving momentum through the valuation process.

Reduced Risk & Uncertainty

Proper preparation eliminates red flags and surprises, leading to more accurate valuations and reduced discount factors applied by appraisers.

12-Month Preparation Timeline

12-9 Months Before: Foundation Building

Financial Systems & Controls

  • • Engage qualified CPA for audit or review
  • • Implement robust accounting procedures
  • • Establish monthly financial reporting
  • • Clean up chart of accounts
  • • Document all revenue streams clearly

Operational Excellence

  • • Document all key processes and procedures
  • • Reduce owner dependency in operations
  • • Strengthen management team
  • • Improve customer diversification
  • • Implement quality control systems
9-6 Months Before: Growth & Optimization

Revenue Growth Initiatives

  • • Launch new products or services
  • • Expand to new markets or territories
  • • Secure long-term contracts
  • • Improve recurring revenue streams
  • • Optimize pricing strategies

Cost Management

  • • Eliminate unnecessary expenses
  • • Renegotiate supplier contracts
  • • Improve operational efficiency
  • • Invest in productivity-enhancing technology
  • • Optimize facility costs
6-3 Months Before: Documentation & Legal

Legal & Compliance

  • • Update all corporate records
  • • Resolve any outstanding legal issues
  • • Ensure regulatory compliance
  • • Update employment agreements
  • • Review and update contracts

Asset Optimization

  • • Update asset valuations
  • • Dispose of non-core assets
  • • Improve asset utilization
  • • Document intellectual property
  • • Optimize working capital
3-0 Months Before: Final Preparation

Data Room Preparation

  • • Organize all financial records
  • • Prepare detailed customer analysis
  • • Compile operational metrics
  • • Document growth opportunities
  • • Create management presentations

Team Preparation

  • • Brief key management on process
  • • Ensure operational continuity
  • • Maintain confidentiality protocols
  • • Prepare for due diligence questions
  • • Focus on performance metrics

Financial Preparation Essentials

Clean Up Your Financials

Essential financial improvements:

Separate personal and business expenses completely
Normalize owner compensation to market rates
Document and justify all add-backs
Maintain consistent accounting methods
Ensure 3+ years of audited statements
Improve Key Metrics

Focus on these critical ratios:

Improve profit margins through efficiency gains
Optimize working capital management
Increase asset turnover ratios
Demonstrate consistent growth trends
Reduce customer concentration risks

Operational Excellence Checklist

Management Team
  • • Hire experienced key managers
  • • Document succession plans
  • • Cross-train critical functions
  • • Implement performance metrics
  • • Create management incentive plans
Process Documentation
  • • Create detailed operating procedures
  • • Document quality control processes
  • • Establish supplier relationships
  • • Record institutional knowledge
  • • Implement training programs
Systems & Technology
  • • Upgrade core business systems
  • • Implement CRM and ERP solutions
  • • Automate routine processes
  • • Ensure data security and backup
  • • Document IT infrastructure

Common Preparation Mistakes to Avoid

Waiting Until the Last Minute

Many business owners start preparing only 1-3 months before valuation. This severely limits your ability to make meaningful improvements that increase value.

Solution: Start preparation 12-18 months in advance for maximum impact.

Inadequate Financial Records

Poor record-keeping, mixed personal/business expenses, and inconsistent accounting methods create significant discounts in valuation.

Solution: Invest in professional accounting and maintain pristine financial records.

Over-Dependence on Owner

Businesses that can't operate without the owner receive significant "key person discounts" that reduce valuation by 15-40%.

Solution: Build systems and management team that can run the business independently.

90-Day Quick Preparation Checklist

If You Only Have 3 Months
Focus on these high-impact items if you're short on preparation time

Financial (Days 1-30)

  • • Clean up current year financials
  • • Separate personal expenses
  • • Document all revenue sources
  • • Prepare normalized financial statements
  • • Gather 3 years of tax returns

Operational (Days 31-60)

  • • Document key processes
  • • List major customers and contracts
  • • Identify key employees
  • • Update corporate records
  • • Resolve outstanding issues

Legal & Compliance (Days 61-75)

  • • Update all contracts
  • • Ensure regulatory compliance
  • • Review employment agreements
  • • Document intellectual property
  • • Address any legal issues

Final Preparation (Days 76-90)

  • • Organize data room materials
  • • Prepare management presentation
  • • Brief key team members
  • • Plan for business continuity
  • • Select valuation professional

Ready to Maximize Your Business Value?

Don't leave money on the table. Get professional guidance on preparing your business for valuation and ensure you achieve the highest possible value. Our comprehensive approach helps business owners increase their valuations by 15-30%.

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