How to Prepare a Trade Business for Valuation

What does preparing for a valuation involve?

There are two separate jobs, and owners often mix them up. The first is preparing the information, so that the valuer can see the business as it is. The second is improving the business, so that it is worth more. The first takes weeks. The second takes months to years.

This guide is mainly about the first. It matters because a valuation is only as good as the evidence behind it. Anything unexplained is treated cautiously, and an adjustment that cannot be supported is usually not made. Well-prepared information also shortens the process: the typical turnaround is 3 to 7 business days once all required information has been received, though complex matters can take longer.

The sections below follow the order in which we usually ask for things, with the reason for each.

How do you separate personal expenses from business costs?

Owner-managed trade businesses almost always carry some private costs. A valuer adds them back to show what the business earns for a buyer, but only if they can be identified. Common examples include the following.

• Private use of vehicles, fuel, tolls and insurance.
• Family phone, internet and streaming plans.
• Home office costs and shared household bills.
• Family members on the payroll, paid above or below the market rate for what they do.
• Holidays, entertainment and gifts that were not business expenses.
• Rent paid to a related party at above or below the market rate.
• The owner’s drawings, salary, director fees, dividends and loans to or from the business.

Prepare a simple schedule showing the date, supplier, amount, why the item is personal and where the evidence is. Be selective. A list full of weak items reduces trust in the strong ones.

Family members on the payroll deserve a note of their own. Say what each person actually does, for how many hours, and what you would pay an outsider for it. The adjustment can go either way: someone underpaid for real work is a cost a buyer will have to meet.

How do you document the owner’s role and hours?

A buyer has to replace what the owner does. The valuer therefore deducts a market cost for that role before looking at earnings, and needs to know what the role is. Write down a typical week.

• Hours worked, and how many of them are billable on the tools.
• Quoting, estimating and pricing.
• Supervising staff and checking quality.
• Managing key customers and suppliers.
• Hiring, rostering, safety and compliance.
• Bookkeeping, invoicing and chasing debtors.
• Which licences the owner holds and which work depends on them.

Beside each item, note who else could do it today. Be accurate rather than modest. If an owner works 55 hours a week and describes it as part-time, the market cost of the role will be set from the facts anyway, and the mismatch costs credibility. Our guide on valuing a business with owner dependency explains how this affects both the earnings and the risk.

What do you need on revenue, customers and contracts?

These items show where the money comes from and how likely it is to continue.

• Revenue by stream for each of the last three years: service and reactive work, maintenance, installation, projects, subcontracting, product sales and compliance work. Different streams carry different risk, and a single total hides that.
• A customer list with the date of first invoice and revenue by year. This shows tenure, concentration and retention.
• Contracts in writing, with term, renewal dates, price review and any assignment or change-of-control wording.
• Gross profit by stream or by major customer, where your system can produce it.
• Monthly revenue for the latest year, if the work is seasonal, so a strong half-year is not read as the whole picture.

If an arrangement is verbal, record it as verbal and note how long it has run. Backdated paperwork is worse than none, because it damages trust in the rest of the file. Our guides on recurring maintenance contracts and customer concentration explain how these items are read.

Which licences, assets and job data matter?

Licence register

List each licence and accreditation: who holds it, the class or endorsement, the number, the expiry, and which work depends on it. Note whether it is held by the business or by an individual who could leave. Add insurance policies with cover and expiry, and any claims in the last three years.

Asset and finance schedule

List vehicles, plant and equipment with the year, condition, who owns each item, the finance owing and the repayments. Mark any asset used privately, any asset the business does not need, and any fully depreciated item that is still earning. A valuer needs to know what is required to produce the earnings and what it costs to keep that current.

Job management data

Export reports from your job management or accounting system: job counts, average job value, repeat customer rates, lead sources, quote conversion, work in progress, retentions held by customers and technician utilisation. This evidence is hard to get any other way, and it supports or challenges what the owner says about how the business runs.

How do you explain one-off items?

One-offs are events that distorted a year and are not expected to recur: a large single job, a bad debt from a builder’s insolvency, an insurance claim, legal costs, a government subsidy, a period when the owner was ill or a key technician left. For each, note what happened, when, the amount, the evidence and why it is not expected to repeat. Keep the evidence with the item, such as the invoice, the insurer’s letter or the liquidator’s notice.

List them in both directions. Owners tend to remember the events that cost them and forget those that flattered a year, such as a storm-repair surge. A balanced list is far more credible than a one-sided one.

What takes months or years rather than weeks?

Everything above is about showing the business accurately. None of it changes what the business is worth. Improving the value takes longer, and changes made in the weeks before a valuation carry little weight until they have a track record. A contract signed last month has not been tested at renewal, and a manager hired last week has not yet shown that the business runs without the owner.

There is a trade-off. An owner who waits for the business to be perfect before asking for a valuation may wait years. Prepare the information now, get the valuation, and let it direct the improvement work. The improvements that tend to matter most are the following.

• Reducing dependence on the owner by hiring or developing a second-in-command.
• Moving key customers onto written agreements and renewing them.
• Spreading revenue across more customers.
• Holding a full financial year of clean accounts with private expenses separated.
• Keeping job and customer records in a system rather than in the owner’s head.

If a sale is the goal, our guide on valuing a business before selling it explains why 12 to 24 months is the useful window. If you are not sure where to start, a valuation will show which issues matter most.

What order should you work in?

1. Ask your accountant for three years of financial statements plus the current year to date, so everything else can be checked against them.
2. Draw up the schedule of personal expenses and one-off items.
3. Write down the owner’s role and weekly hours.
4. Export revenue by stream and by customer, with start dates.
5. Gather the contracts and note any that are verbal or expired.
6. Build the licence, insurance, asset and finance schedules.
7. Export the job management reports.
8. Upload everything through the secure client portal after intake at our start page, and say where anything is missing.

Our guide on documents needed for a business valuation lists the full financial and ownership pack.