When Should You Get a Business Valuation?

If you own a small or privately held business, maybe you have wondered:

“How much is my business actually worth?”

For many business owners, the answer is probably, “I have no idea.” That is not necessarily a problem. If you have no plans to sell the business, transfer ownership, or use its value for planning purposes, you may not have an immediate need for a formal business valuation. However, there are several situations where knowing the value of your business becomes extremely important.

A business valuation is more than just determining a number that sounds reasonable. In many situations, the value needs to be supported by financial information, market data, and a defensible valuation process.

So, when should you consider getting one?

1. When Buying or Selling a Business

Perhaps the most obvious reason to obtain a business valuation is when a business is being bought or sold. If you’re selling your business, you need to have a reasonable understanding of what the business is worth before negotiating a price. Without that information, you could potentially sell for less than the business is worth—or establish an asking price so high that potential buyers never take the opportunity seriously.

On the opposite side of the table, the same applies to buyers. A buyer needs to understand whether the price being requested is reasonable based on the business’s earnings, assets, risks, and future prospects.

A valuation does not necessarily tell you exactly what a buyer will pay. Ultimately, the market determines the transaction price. However, it can provide an important starting point for understanding what the business may be worth and why. It also helps get negotiations going, especially when either side has differing thoughts and an independent third party can come in to help keep the negotiations moving along.

2. When Planning Your Estate

Business ownership can become one of the largest assets in someone’s estate. If you own a significant interest in a privately held business, determining its fair market value may become important for estate planning purposes.

The IRS generally includes business interests owned at death when determining the gross estate, and the value used is generally the fair market value of the interest at the applicable valuation date.

This is particularly important because privately held businesses do not have a publicly traded stock price that you can simply look up. A business owner may know that their company is “worth a lot,” but that is very different from having a defensible value for estate planning and tax purposes.

For 2026, the federal basic estate tax exclusion is $15 million per individual. That does not mean every business owner with a business worth less than $15 million can ignore estate planning, nor does it mean estate planning is only relevant to people above that amount. State estate taxes, other assets, prior gifts, future appreciation, and the owner’s overall estate plan can all matter.

This is one reason valuation can be useful as part of broader estate planning.

3. When Gifting Ownership to Children or Grandchildren

Another common situation is when a business owner wants to begin transferring ownership to the next generation.

For example, suppose you own 100% of a business and want to gradually transfer portions of the company to your children or grandchildren. Before you can determine how much of the business you’re transferring, you need to know what the business—or the specific ownership interest—is worth.

This becomes especially important when considering the federal gift tax rules.

For 2026, the annual gift tax exclusion is $19,000 per individual per recipient. Gifts above the annual exclusion may use some of the donor’s lifetime gift and estate tax exclusion, depending on the circumstances. That means a business owner considering a significant ownership transfer needs to understand the value of what is actually being transferred.

For example, transferring 5% of a business is not particularly meaningful from a tax-planning perspective if you don’t know what that 5% is worth. And valuing a minority ownership interest can be more complicated than simply taking 5% of the value of the entire company. Factors such as lack of control and lack of marketability can potentially affect the value of a particular ownership interest. The IRS recognizes that valuation discounts may apply in certain circumstances, but the appropriate discounts depend on the facts of the specific interest. This is an area where professional valuation and tax advice can become particularly important.

4. When Establishing or Updating a Buy-Sell Agreement

Business owners sometimes use buy-sell agreements to establish what happens to an ownership interest when a triggering event occurs.

Those events might include:

• An owner dies
• An owner wants to leave the business
• An owner becomes disabled
• An owner retires
• An owner wants to sell their interest
• Certain other circumstances outlined in the agreement

A buy-sell agreement may establish a formula or other mechanism for determining the purchase price of an ownership interest.

Even when an agreement already exists, periodically reviewing the underlying valuation assumptions can be worthwhile. A business that was worth $1 million five years ago may be worth substantially more—or less—today.

An outdated valuation formula can create problems at exactly the time when the owners need the agreement most.

5. When You’re Considering a Major Ownership Change

Not every valuation is related to selling the entire company.

You may be bringing in a new partner, buying out an existing partner, transferring ownership between family members, or restructuring ownership among existing shareholders. In these situations, understanding the value of the business can help establish a reasonable starting point for the transaction. This can also help prevent disagreements between owners.

After all, it is much easier to negotiate an ownership transfer when everyone has a common understanding of what the underlying business is worth.

6. When a Major Life Event Changes Your Financial Picture

Business valuations can also become relevant during certain personal or legal events. Divorce is one example. If one spouse owns an interest in a privately held business, determining the value of that interest may be necessary to understand the couple’s overall financial picture.

Similarly, valuations can sometimes be relevant in shareholder disputes, litigation, financing transactions, or other situations where the value of a privately held business interest needs to be established. The exact requirements depend heavily on the situation, which is why the purpose of the valuation matters. A valuation prepared for a potential sale may not be appropriate for an estate or gift tax matter.

You Don’t Need to Wait Until You’re Ready to Sell

One of the biggest misconceptions I see about business valuation is that you only need to think about it when you’re ready to sell. In reality, knowing what your business is worth can be useful long before an actual sale.

A valuation can help business owners identify what is driving value, what may be holding the business back, and what areas could be improved. For example, if a valuation reveals that customer concentration is creating significant risk, an owner may have several years to diversify the customer base before selling.

If the business has strong earnings but poor financial records, improving the quality of those records may make the business easier to evaluate and potentially more attractive to future buyers. The earlier you understand your business’s value, the more time you have to influence it. It’s better to know what you could improve while you still have time to improve it than to find out what is wrong when you’re ready to be done and lose a lot of value that your business could have had.

So, When Should You Get a Business Valuation?

The answer: it depends on your individual circumstances. 

If you’re simply curious about what your business might be worth, a valuation can certainly provide useful information—but you may not need a formal valuation report.

On the other hand, if the value is going to be used for a significant transaction, tax purpose, estate planning, gifting strategy, ownership dispute, or other important decision, the need for a professionally supported valuation becomes much more important.

In a short list, some of the most common reasons include:

• Buying or selling a business
• Estate planning
• Determining the value of a business interest at death
• Gifting ownership to children or grandchildren
• Establishing or updating a buy-sell agreement
• Buying out or bringing in an owner
• Certain divorce or legal matters
• Financing or other significant transactions
• Understanding and planning for a future business sale

The important takeaway is that business valuation is not just something you do when you’re ready to sell; it’s something to think about years before you plan to sell.

For many business owners, the most valuable time to understand what their business is worth is well before they need to know. That way, operations and financial records can be in a place where the true value of the business can shine.

My Two Cents

If you own a business and have never asked yourself what it is worth, that doesn’t necessarily mean you need to hire someone tomorrow and order a formal valuation report. But you should at least have some idea.

Your business may be one of the largest assets you own. Understanding its value can help with tax planning, estate planning, succession planning, ownership decisions, and eventually selling the business.

And perhaps most importantly, knowing what your business is worth gives you time. Time to improve it. Time to plan. And time to make better decisions before you’re forced to make them.

– Brendan Tiedeman, CPA, CVA

Disclaimer:
This article is for educational and informational purposes only and should not be considered tax, legal, investment, business valuation, or financial advice. Tax laws and valuation standards can change, and individual circumstances vary. Consult with a qualified tax, legal, financial, or valuation professional regarding your specific circumstances before making decisions.