It is critical to determine the purpose of the valuation. This determination shapes the choice of valuation method(s) to apply, because different approaches and concepts may be more appropriate for different purposes.

Most business owners use tax returns or financial statements prepared for tax purposes as the basis for the financial presentation of their business. As a result, the market value of assets are not reflected because of depreciation or acceptable deductions that are written off for tax purposes.

While this may be good for tax purposes, tax return financials do not reflect years of hard work in accumulating business assets. The business goodwill or intangible value, which represents a major component of what the business is worth in many cases, is not a consideration for income tax purposes and, therefore, not addressed in financial statements for tax purposes.

For a business to grow and expand in today's market, capital and financing are essential. The financial presentation reflecting what the business is worth can be a powerful tool in dealing with financial institutions, suppliers, and customers.

A Business valuation is essential when the owner is ready to consider selling the business.