What Types of Documents Do You Need For A Business Valuation?
In a business valuation as in any other profession, like banking, real estate, legal profession, and more, there are documents that are required from clients in order to provide the service they are looking for.
To open a personal account in the bank, you need to provide your ID, your social security number and an opening deposit in order to have your account opened. To get a mortgage, you most likely will need to provide your pay-stubs, in addition to your personal and/or business documents to apply for the mortgage. This is also true for a business valuation.
The documents request form that analysts send to their clients, lists all the required documents needed to have the valuation done. The list below provides a snapshot of documents that may be requested:
Tax returns and/or financial statements (income statements and balance sheets)
Payroll, fixed asset/depreciation, inventory reports
Payables and receivables aging reports
Corporate records such as by-laws, articles of incorporation/formation, minutes of board meetings, etc.
Shareholder, management, not-to-compete, and similar agreements
Loan documents for key loans
Real estate, equipment, and other property appraisals
Information about previous transactions in the subject company’s stock
Details of pending litigation
Details/documents about investments
Forecasts & projections
Details of major contracts
And possibly more.
As you can see, the list is not necessary exhaustive, therefore the analyst may ask for more documents if needed.
Number of Years Needed
In a valuation for tax purpose like estate tax or gift tax, the analyst typically requires at least the last five years of tax returns and financial statements to have a good understanding of the performance of the business during that period. In valuation for litigation, the number of years could also be five years because valuations for litigation must be done with extreme care due to the possibility of a Daubert Challenge  in court by the opposing counsel.
In transaction valuations like purchase, sale, and buy-sell agreements for example, typically the analyst requires three years of tax returns and financial statements. This does not mean the analyst cannot require five years of those documents. To be sure, it is always important to discuss with the analyst the exact number of years he or she needs and when you have difficulties getting them, he or she can tell you what to do.
 A Daubert challenge is a hearing conducted before the judge where the validity and admissibility of expert testimony is challenged by opposing counsel. The expert is required to demonstrate that his/her methodology and reasoning are scientifically valid and can be applied to the facts of the case.
Achille Ekeu, MBA, CVA
The Washington Valuation Group
Achille is a Certified Valuation Analyst (CVA) member of the National Association of Certified Valuators and Analysts (NACVA) in the DC-MD Chapter. He provides valuation services for Estate and Gift Tax, Purchase, Sale of business, Debt Financing, Buy-Sell Agreements, and Litigation Support in Divorce/shareholders disputes cases. He can be contacted by phone at 240-274-9570 or by email at firstname.lastname@example.org.