Wealth Insights

How to value a business for sale or succession

From financials to goodwill, learn about what drives real business valuation.

Key takeaways

• Business valuation blends financial data with judgment, making it both analytical and subjective.
• Core methods include book value, price-to-earnings and discounted cash flow analysis.
• Intangible assets like intellectual property and goodwill often drive the true value of a business.

For many business owners, the value built into their company represents more than a number. It reflects years of effort, future financial security, and the legacy they plan to leave behind. Understanding how to value a business is essential whether you’re preparing to sell, transfer ownership or plan for long-term growth.

“A business value calculation may affect your access to capital, providing a measurement of current income, growth of assets, impact of liabilities, and the perceived value of other intangibles,” says Bryan Koepp, Wealth Planning Executive. Even with all these inputs, one key factor can shape the outcome more than anything else. “Determining the purpose of your valuation calculation is potentially as important as the valuation itself.”

He adds an important caveat. “Business value should be seen as a snapshot in time that becomes less accurate from the moment the picture is taken. At times, valuing a business really becomes more of an art than a science.”

What is business valuation?

Business valuation is the process of determining what a company is worth at a specific point in time. This value has the potential to influence financing decisions, sale price, tax planning and succession strategies.

While financial statements provide the foundation, valuation also considers market conditions, growth potential and intangible assets that may not appear on a balance sheet.

Common methods to value a business

There is no single formula for how to value a business. Instead, professionals rely on several widely accepted methods depending on the company’s size, structure and goals.

1. Book value method

This approach calculates value by subtracting liabilities from assets. It offers a clear, numbers-based baseline but may overlook important intangible assets such as brand reputation, customer relationships or proprietary knowledge.

2. Price-to-earnings (P/E) ratio

The P/E method applies an earnings multiple based on comparable companies to estimate what buyers may be willing to pay. This approach is especially useful for understanding market-driven valuation.

3. Net present value (discounted cash flow)

This method estimates the current value of future cash flows by discounting them back to today’s dollars. It focuses on the company’s ability to generate income over time, helping gauge long-term profitability in present terms.

Why intangible assets matter

If valuing a business only required adding up physical assets, the process would be straightforward. However, much of a company’s true worth often lies beyond what you can see or touch.

Intellectual property

Intellectual property includes trade secrets, patents, trademarks and licensing agreements. These assets have historically generated income and created competitive advantages.

However, they are not permanent sources of value. Like a natural resource, intellectual property can decline over time. For example, patents have finite lifespans, which directly impacts their valuation.

Maintaining detailed records and protecting sensitive information through nondisclosure agreements can help preserve and demonstrate this value to potential buyers.

Goodwill, great value

“Goodwill measures value associated with customer loyalty, strength of management, reputation, market position and branding,” Koepp says.

Goodwill reflects whether customers return, recommend your business, and trust your brand. It includes factors such as:

• Reputation for quality and service
• Strength of customer and supplier relationships
• Brand recognition and community presence

For privately held businesses, goodwill is often assessed through factors like years in operation, consistent sales growth and strong profit margins.

Owner influence on business value

Business owners have more control over valuation than they may realize. Strategic decisions that improve revenue, strengthen brand perception and invest in key growth drivers can directly increase value.

In smaller businesses, the owner’s personal reputation is often closely tied to the company. This can create challenges during a sale if buyers worry about continuity after the owner exits.

To strengthen independent business value:

• Elevate key employees into visible leadership roles
• Build relationships that extend beyond the owner
• Increase community presence and brand recognition

A strong workplace culture and retention strategies, such as nonqualified deferred compensation plans, may also make a business more attractive to buyers.

Building the right advisory team

Valuing a business is a multidisciplinary effort that often requires professional guidance. Working with experienced advisors helps ensure both tangible and intangible assets are accurately assessed.

A well-rounded team may include:

• Certified valuation analyst (CVA)
• Attorney
• Tax specialist
• Mergers and acquisitions advisor

These professionals can help refine valuation methods, validate assumptions and align business value with broader financial goals.

Valuation in succession and estate planning

For owners planning to transfer their business to family members, valuation plays a key strategic role.

“If your intention is to transition your business to the next generation via gift or family sale, the application of a defensible valuation for gift and estate purposes may be advisable,” Koepp says. “In this example, discounts for lack of marketability and lack of control may maximize your federal gift exemption and provide estate planning efficiency.” These are subject to applicable tax rules.

Accurate valuation may serve as a foundation for tax-efficient planning and a seamless transition aligned with your long-term legacy objectives.

Talk with your Regions Wealth Advisor about:

1. How you can build a team around your exit plan, including valuation.
2. Ways to make the most of the sale of your business.

Want to get started with financial planning as a business owner?
Our wealth management guide can serve as your starting point.

Interested in talking with an advisor but don’t have one?
Find a wealth advisor in your area.