How to Prepare for a Business Valuation

Tips to Maximise Value and Minimise Surprises

Whether you're planning to sell, raise capital, restructure, or simply understand where your business stands, a business valuation is a critical step. But a valuation isn't just about numbers—it's about the full picture of your business. The better prepared you are, the more accurate and meaningful the outcome will be.

Here are key steps to take when preparing for a business valuation, with a focus on your financials, operations, and market conditions.

1. Get Your Financial House in Order

Financial information is the backbone of any valuation. The more accurate, consistent, and transparent your records are, the smoother the process will be.

What to focus on:

• Clean and updated financial statements: Ensure your profit and loss statements, balance sheets, and cash flow statements are up-to-date and prepared in accordance with accounting standards. Ideally, have at least the last 3–5 years ready.
• Immediate year forecast: Having detailed forecasts that map future performance, cash flow, capital expenditure\investment by month that is supported by, and reflects the strategic plan is critical.  It is the future cash flows that an investor is purchasing, and historical financials are only a guide that support the future is more likely to be achieved.
• Normalise earnings: Identify and adjust for one-off expenses, non-operating income, or owner-specific items (e.g., personal expenses, above-market salaries) to reflect the true earnings power of the business.
• Reconcile tax records: Discrepancies between tax returns and financial statements can raise red flags. Reconcile these where possible.  Ensure all tax obligations are current.
• Document debt and obligations: Have a clear breakdown of business loans, leases, or commitments along with any contingent liabilities.

TIP: If your accounts aren’t audit-ready, consider having an external accountant review them. Credibility matters.

2. Review and Optimise Operational Performance

Beyond the numbers, valuers want to understand how the business runs and whether it's sustainable, scalable, or exposed to operational risks.

Key areas to assess:

• Processes and systems: Are there documented processes in place? Is your business reliant on a few key people, or is it systemised and replicable? Know how needs to be in the business and not isolated to the owner.
• Key personnel: High staff turnover, lack of succession planning, or overreliance on any operator within the business can negatively impact value. A well-structured management team adds to business resilience.
• Personal goodwill: Detaching reliance on the business owner is fundamental in deriving a higher value.  A buyer wants to buy the business, not the owner.
• Customer base: A diverse and loyal customer base is more valuable than one dependent on a few major clients. Be ready to show data on customer concentration, repeat business, and churn rates.  Where appropriate, signed contracts are non-negotiable.
• Contracts and legal matters: Secure supplier agreements, lease terms, IP ownership, and pending litigation should be reviewed and disclosed.

TIP: Prepare a business overview or info memo that summarises your operations. It helps valuers and potential buyers quickly understand your strengths.

3. Understand the Market Context

Valuation doesn’t happen in a vacuum—it’s influenced by external market conditions and industry trends.

What to consider:

• Industry trends and benchmarks: Know how your business performs relative to peers. This can help frame realistic expectations on valuation multiples.
• Competitive landscape: Who are your competitors? What differentiates your offering? Do you have a new offering to take to market?  What keeps your offering relevant? A brand is only powerful if it generates a profitable cash flow.
• Economic conditions: Macroeconomic trends, interest rates, and regulatory changes can all affect buyer sentiment and valuation outcomes.  What impact is technology having on your offering?
• Recent transaction data: If available, data from recent business sales in your sector can help provide market context for your valuation.  It may also help to identify whether a ready buyer market is available.

TIP: Be prepared to articulate your business’s positioning and growth potential in the current market—especially if external factors have impacted recent performance.

Final Thoughts

Preparing for a valuation isn't just a financial exercise—it’s a strategic one. By taking a proactive approach to tidy up financials, optimise operations, and understand your market, you’re not only setting yourself up for a smoother valuation process but also increasing the potential value of your business.

At Andersen in New Zealand, we support businesses through every stage of the valuation journey. If you're considering a valuation or want to improve your business's readiness, our team can help you get there with clarity and confidence.

In Part 2, we uncover what valuers are looking for in your numbers.

Author - Aaron Wallace