Business Valuation Checklist

Standard of value drives every methodology choice downstream — fair market value (gift/estate, IRC §2031, Rev. Rul. 59-60), fair value (ASC 820 financial reporting or state statutory dissent), investment value (specific buyer), or intrinsic value. Document purpose: gift/estate, 409A, ESOP, buy-sell, M&A, divorce, litigation. Mismatched purpose vs. standard is the most common engagement-letter defect.

AICPA SSVS No. 1 requires a written understanding covering scope, purpose, valuation date, standard and premise of value, intended users, restrictions, and whether the engagement is a Valuation Engagement (Conclusion of Value) or Calculation Engagement (Calculated Value). The two have different report types and procedures — pick before signing.

Check the AICPA Code of Professional Conduct independence rules if the subject company is also an attest client. For litigation engagements, document advocacy threats. Run conflicts against opposing counsel and adverse parties.

Standard request: 5 years of financials and tax returns, projections, cap table, articles/operating agreement, buy-sell, customer concentration schedule, owner comp detail, related-party transactions, leases, debt schedules, and any prior valuations. Use Suralink, TaxDome, or SmartVault for the portal.

Get audited statements where available; otherwise reviewed or compiled, then internally prepared. Note the level of assurance — unaudited internal financials carry valuation discount risk and should be reconciled to tax returns.

Tie revenue, COGS, and net income from 1120/1120-S/1065 to the GAAP financials. Document M-1 / M-3 reconciling items: meals, depreciation differences, owner-life insurance, accrued comp. Material unexplained deltas are a fraud / quality-of-earnings flag.

Build the normalization schedule: above-market owner comp (replace with BLS/Risk Management Association comp study), personal expenses run through the entity, related-party rent vs. market, one-time legal/restructuring costs, PPP/ERC, and non-recurring gains. Document each adjustment with a sourced justification — these are the most-challenged numbers in any rebuttal report.

Compare projected growth to historical CAGR, industry benchmarks (IBISWorld, BizMiner), and announced capacity. Hockey-stick projections without supporting capex or sales pipeline get hair-cut or rejected. Document whether projections are management's, adopted, or analyst-built.

Identify the NAICS code, pull industry growth rates, profit margin benchmarks, and outlook commentary. IBISWorld and BizMiner are the standard cites in business-valuation reports; First Research is acceptable. The valuation report needs at least one industry source per Rev. Rul. 59-60.

Document each force with subject-specific evidence: supplier concentration, buyer concentration, threat of substitutes, barriers to entry, and competitive rivalry. Generic Porter's analysis adds no defensibility — name actual suppliers, customers, and competitors.

Pull top-10 customer revenue as % of total. Concentration above 20% from a single customer typically warrants a company-specific risk premium. Same analysis on the vendor side for input dependence.

Compute the subject's share of addressable market in its primary geographies. Note licensing or regulatory boundaries that limit expansion (state-licensed services, franchise territories, FDA-regulated facilities).

Identify operating real estate vs. non-operating (investment) real estate. Non-operating real estate is typically valued separately at FMV and added to the operating-business value, with related rent normalized to market.

Engage a state-certified general appraiser; valuation analyst should not opine on real estate value directly. USPAP-compliant appraisal is required for IRS-related engagements (gift, estate, charitable contribution).

Pull the depreciation schedule (Form 4562 detail) and reconcile to GL fixed assets. For asset-approach work, engage a machinery and equipment appraiser (ASA-MTS designation) when book value clearly diverges from market.

Catalog customer relationships, trade names, non-compete agreements, developed technology, and assembled workforce. Each has a standard valuation method — multi-period excess earnings, relief-from-royalty, with-and-without — and useful-life basis for amortization.

Compare book inventory to last physical count; review aging and obsolescence reserves. LIFO reserves get added back on a fair-market-value asset approach.

Project 5-10 years of free cash flow to firm, terminal value via Gordon growth or exit multiple, and discount at WACC. Build the WACC bottom-up: risk-free rate (20-year Treasury), equity risk premium (Duff & Phelps / Kroll Cost of Capital Navigator), size premium, industry premium, company-specific risk premium. Document each input.

Identify 5-10 public comparables by SIC/NAICS and business model. Compute EV/Revenue, EV/EBITDA, P/E multiples and apply size and risk adjustments before applying to the subject. Document why each guideline was selected or rejected.

Pull comparable private-company transactions from DealStats, BIZCOMPS, or PitchBook. Filter by industry, size, and date. Note that transaction multiples include a control premium not present in public-comp multiples.

Required floor for holding companies and asset-heavy operating businesses. Restate each balance sheet line to FMV: real estate to appraised value, M&E to appraised value, inventory at market, identify off-balance-sheet liabilities (pending litigation, environmental).

DLOC supported by control premium studies (Mergerstat); DLOM supported by restricted stock studies (Stout DLOM Calculator, FMV Opinions) or pre-IPO studies. Discounts must match the level of value indicated by each approach — applying DLOM to an already-marketable indication is the most-cited error in IRS challenges.

Weight income, market, and asset approaches based on the subject's profile — operating company favors income/market; holding company favors asset. Document weighting rationale; mathematical averaging without justification is an SSVS deficiency.

Detailed Report (SSVS §51) for Conclusion of Value engagements covers all required elements: subject description, ownership, purpose, scope of work, fundamental analysis, methodology, conclusion, and assumptions / limiting conditions. Calculation Reports follow §73-77 and are clearly labeled as such on every page.

Independent partner reviews workpapers, model, and report for SSVS compliance and analytical defensibility. Concurring review is required by most firm QC policies for any litigation or tax-controversy report.

Resolve each review note in the workpaper file with a documented response. Re-run concurring review on materially changed sections before issuing.

Deliver signed PDF via secure portal. Archive the engagement file per firm retention policy (typically 7 years; longer for IRS-related work). Lock workpapers as read-only on issue date.