What Every Business Owner Should Know About Valuation Analysts
As a closely-held business owner, there will come a time when knowing the true value of your company becomes critical. Whether you’re planning a transition, resolving a shareholder dispute, managing estate matters, or simply positioning your business for long-term growth, a credible and well-supported business valuation is essential.
One of the most important professionals in this process is the valuation analyst. For business owners, understanding what a valuation analyst does—and why their work matters—can be the difference between guesswork and confident decision-making.
Why Closely-Held Business Valuation Is Complex
Closely-held businesses don’t trade on public markets. That means there’s no daily share price to gauge their value. Instead, valuation depends on a detailed analysis of financial performance, market conditions, and business-specific risk factors.
Unlike public companies, privately held businesses often have financial statements that reflect personal or discretionary expenses, related-party transactions, or one-time events. These need to be adjusted to reflect the true economic benefit of the business. Ownership structures may also add complexity, particularly when minority interests or lack of marketability must be considered.
This is where a valuation analyst’s expertise becomes essential—identifying the underlying value drivers of your company and presenting a fair, supportable picture of its worth.
The Valuation Analyst’s Role: Clarity, Objectivity, and Strategy
A valuation analyst is a financial professional trained to determine what your business is worth through a rigorous, objective process. Their role is not just to calculate numbers, but to bring clarity to complex data, test assumptions, and deliver a conclusion that can be used for legal, tax, or strategic purposes.
Common reasons business owners seek valuations include:
- Ownership transitions or buyouts
- Succession and estate planning
- Gifting of shares or interests
- Business sales or mergers
- Shareholder or partner disputes
- Divorce or marital dissolution
In each of these scenarios, the valuation analyst helps ensure that decisions are based on objective, defensible analysis—not informal estimates or inflated expectations.
Approaches to Valuation: What Business Owners Should Know
There is no one-size-fits-all method for valuing a closely-held business. A qualified valuation analyst will choose the most appropriate approach—or combination—based on your company’s size, industry, financial health, and purpose of the valuation. The primary approaches include:
- Income Approach
This method focuses on your company’s ability to generate future cash flows, which are then discounted to present value. It is well-suited for established businesses with predictable performance. - Market Approach
This involves comparing your business to similar companies that have recently sold or are publicly traded. Because private company data is limited, careful adjustments are made to ensure relevance. - Asset-Based Approach
This approach adds up the fair market value of your company’s assets and subtracts its liabilities. It’s typically used when valuing asset-heavy businesses or those not operating as going concerns.
These methodologies require not only technical skill but also a deep understanding of your industry and business operations.
Standards, Confidentiality, and Credibility
Valuation analysts adhere to professional standards established by bodies like the American Society of Appraisers (ASA) and the National Association of Certified Valuators and Analysts (NACVA). These frameworks guide ethical conduct, documentation, and defensibility.
Equally important is confidentiality. When you open your books to a valuation professional, you’re sharing sensitive business information. A reputable analyst will maintain strict confidentiality and provide a report that can withstand scrutiny from courts, tax authorities, or business partners.
Empowering Business Owners Through Accurate Valuation
Your business is likely one of your most valuable assets. Understanding its worth empowers you to make informed decisions—whether that means preparing for a sale, protecting your legacy, or navigating a major life event.
A valuation done right is more than just a number—it’s a strategic tool. When handled by an experienced, independent professional, it can give you the clarity and confidence to move forward with purpose.
For trusted, confidential valuation services backed by forensic accounting expertise, contact Smith, Stohlman, James & Gardere to learn how we can help you make informed decisions about your business’s future.