Business Valuation 101: What Every NJ Business Owner Needs to KnowFebruary 2, 2026

A business valuation determines the economic worth of a company based on its assets, earnings, market position, and growth potential. For New Jersey business owners, understanding how valuations work—and when to get one—can mean the difference between making informed financial decisions and leaving money on the table.

Whether planning for retirement, considering a sale, or navigating a legal dispute, knowing what a business is actually worth provides the foundation for every major financial decision. This guide breaks down the fundamentals of business valuation, the different types available, and what the process looks like from start to finish.

What Is Business Valuation?

Business valuation is the process of determining the fair economic value of a business or ownership interest. Unlike simply looking at revenue or profit, a comprehensive valuation considers multiple factors: tangible assets, intellectual property, customer relationships, market conditions, and future earning potential.

The result is a defensible dollar amount that reflects what a willing buyer would pay a willing seller, assuming both parties have reasonable knowledge of the relevant facts and neither is under pressure to complete the transaction.

Professional valuations are conducted by certified professionals—typically Certified Public Accountants (CPAs) with specialized training, Accredited Senior Appraisers (ASAs), or Certified Valuation Analysts (CVAs). These professionals follow established standards and methodologies that produce results accepted by courts, the IRS, and financial institutions.

Why Business Valuation Matters

Many business owners operate for years without knowing what their company is worth. Studies suggest that over 98% of business owners either overestimate or underestimate their business value—sometimes by significant margins.

This knowledge gap creates real problems:

• Missed opportunities: Owners may reject acquisition offers that actually exceed fair value
• Poor planning: Retirement and succession plans built on inaccurate assumptions fail
• Tax issues: Incorrect valuations can trigger IRS audits and penalties
• Legal exposure: Courts reject valuations that lack proper methodology

A professional valuation eliminates guesswork and provides a documented, defensible number that holds up under scrutiny.

Types of Business Valuations

Not all valuations serve the same purpose. The type needed depends on the specific situation and who will rely on the results.

Fair Market Value

Fair market value (FMV) represents the price at which property would change hands between a willing buyer and seller, with both having reasonable knowledge of relevant facts and neither under compulsion to act. This is the most common valuation standard and is required for:

• Estate and gift tax purposes
• Charitable contributions
• Buy-sell agreements
• ESOP transactions

The IRS specifically requires fair market value for tax-related matters, making it essential for compliance.

Fair Value

Fair value differs from fair market value in important ways. Used primarily in shareholder disputes, divorce proceedings, and financial reporting, fair value typically excludes discounts for lack of control or marketability that would apply under FMV standards.

In New Jersey divorce cases, for example, courts often apply fair value when dividing marital assets to prevent one spouse from benefiting from artificial discounts.

Investment Value

Investment value reflects what a specific buyer would pay based on their unique circumstances, synergies, and strategic objectives. This value often exceeds fair market value because it accounts for benefits particular to that buyer.

A competitor acquiring a business might value it higher than the market because of:

• Elimination of competition
• Access to new customers or territories
• Cost savings from combined operations
• Strategic patents or technology

Liquidation Value

Liquidation value estimates what assets would bring if sold quickly, typically under distressed conditions. This represents the floor value of a business and is relevant for:

• Bankruptcy proceedings
• Loan collateral assessments
• Wind-down scenarios

Liquidation value is almost always lower than going-concern value because it assumes assets are sold individually rather than as part of an operating business.

Book Value

Book value equals total assets minus total liabilities as shown on the balance sheet. While easy to calculate, book value rarely reflects true economic value because:

• Assets are recorded at historical cost, not current market value
• Intangible assets like brand reputation and customer relationships may not appear on the balance sheet
• Depreciation schedules may not match actual asset deterioration

Book value serves as a starting point but should not be relied upon as a complete valuation.

The Business Valuation Process

A professional valuation follows a structured process designed to gather relevant information, analyze it objectively, and produce a supportable conclusion.

Step 1: Define the Engagement

The valuation professional first clarifies:

• The purpose of the valuation (sale, estate planning, litigation, etc.)
• The valuation date (valuations are point-in-time assessments)
• The standard of value required (fair market value, fair value, etc.)
• The ownership interest being valued (100%, minority stake, etc.)

These factors directly affect methodology and conclusions.

Step 2: Gather Information

The appraiser collects comprehensive data about the business, including:

• Financial statements: Three to five years of income statements, balance sheets, and cash flow statements
• Tax returns: Business and, in some cases, personal returns
• Organizational documents: Operating agreements, shareholder agreements, buy-sell agreements
• Contracts: Major customer and vendor agreements, leases, employment contracts
• Industry data: Market conditions, competitive landscape, economic factors

A site visit and management interviews typically supplement document review.

Step 3: Analyze the Business

With information gathered, the professional analyzes:

• Historical financial performance and trends
• Normalized earnings (adjusting for non-recurring items and owner compensation)
• Risk factors specific to the business and industry
• Growth prospects and competitive position
• Economic and regulatory environment

This analysis informs which valuation methods are most appropriate.

Step 4: Apply Valuation Methods

Depending on the business type and purpose, one or more valuation approaches are applied:

• Income approach: Values the business based on expected future cash flows
• Market approach: Compares the business to similar companies that have sold
• Asset approach: Values individual assets and liabilities

Most valuations consider multiple approaches and reconcile the results.

Step 5: Apply Discounts or Premiums

Depending on the ownership interest and circumstances, adjustments may include:

• Discount for lack of control: Applied when valuing minority interests
• Discount for lack of marketability: Applied to privately held companies
• Control premium: Applied when valuing controlling interests

These adjustments can significantly affect the final value.

Step 6: Issue the Valuation Report

The final deliverable is a written report documenting:

• The purpose and scope of the engagement
• Information considered
• Methods applied and why
• Conclusion of value
• Limiting conditions and assumptions

Reports range from brief calculation engagements to comprehensive formal opinions, depending on the situation.

Key Factors That Affect Business Value

Several factors influence what a business is worth. Understanding these helps owners take steps to maximize value before a transaction.

Financial Performance

Consistent, growing revenue and profits increase value. Buyers and appraisers look for:

• Revenue trends over three to five years
• Profit margins compared to industry benchmarks
• Cash flow generation and working capital management
• Quality of earnings (recurring vs. one-time)

Customer Concentration

Businesses heavily dependent on a few customers carry higher risk. If one customer represents more than 15-20% of revenue, buyers often discount the value or require seller protections.

Management Depth

Companies that depend entirely on the owner are worth less than those with strong management teams. Buyers want assurance that the business can operate successfully after the current owner exits.

Growth Potential

Demonstrated growth trajectory and untapped opportunities—new markets, products, or efficiencies—enhance value. Documented plans with realistic projections support higher valuations.

Industry Conditions

Economic cycles and industry-specific factors affect value. Businesses in growing industries with favorable regulatory environments command premiums over those in declining sectors.

Tangible and Intangible Assets

Beyond equipment and real estate, intangible assets significantly affect value:

• Brand recognition and reputation
• Proprietary technology or processes
• Customer relationships and contracts
• Trained workforce
• Favorable lease terms

Proper documentation of these assets supports higher valuations.

When New Jersey Business Owners Need Valuations

Several situations require or benefit from professional business valuations. For a detailed discussion of specific indicators, see Top Indicators Your Business Needs a Professional Valuation.

Common situations include:

• Selling or buying a business: Establishing fair asking price or offer amount
• Estate and gift planning: IRS requires valuations for estate tax and gift tax purposes
• Divorce proceedings: New Jersey courts require valuations for equitable distribution
• Partner buyouts: Determining fair price for ownership transfers
• Shareholder disputes: Resolving disagreements over ownership value
• Succession planning: Planning ownership transitions to family or key employees
• Buy-sell agreement funding: Setting values for insurance and agreement purposes
• SBA loan applications: Lenders often require third-party valuations

New Jersey’s specific tax laws and court requirements make working with professionals familiar with state regulations particularly important.

Business Valuation Methods Overview

Three primary approaches are used to value businesses. The appropriate method depends on the business type, available data, and valuation purpose.

Income Approach

The income approach values a business based on its ability to generate future economic benefits. The most common method is the discounted cash flow (DCF) analysis, which:

1. Projects future cash flows
2. Applies a discount rate reflecting risk
3. Calculates present value of those cash flows

This approach works well for profitable, established businesses with predictable cash flows.

Market Approach

The market approach determines value by comparing the subject business to similar companies. Two common methods include:

• Guideline public company method: Uses publicly traded comparable companies
• Guideline transaction method: Uses sales of similar private companies

This approach requires sufficient comparable data, which may be limited for niche businesses.

Asset Approach

The asset approach values a business by determining the fair market value of its assets minus liabilities. This method is most appropriate for:

• Asset-intensive businesses
• Holding companies
• Businesses being liquidated

For operating businesses, the asset approach typically provides a floor value.

Frequently Asked Questions

How much does a business valuation cost?

Professional valuations typically range from $5,000 to $50,000 or more, depending on business size, complexity, and the type of report required. Calculation engagements cost less than full appraisals, while litigation support valuations require more extensive documentation and may cost more.

How long does the valuation process take?

Most valuations take four to eight weeks from engagement to final report. Complex businesses, litigation matters, or difficulty obtaining information can extend the timeline. Planning ahead—especially for transactions or estate planning—avoids last-minute pressure.

How often should a business be valued?

For businesses with buy-sell agreements, annual or biennial updates are recommended. Otherwise, valuations should be obtained whenever a triggering event occurs or major decisions require knowing current value. Even without specific needs, periodic valuations help track progress toward financial goals.

Can business owners increase their company’s value?

Yes. Steps that typically increase value include:

• Documenting systems and processes
• Building management depth beyond the owner
• Diversifying customer base
• Maintaining clean, accurate financial records
• Addressing financial irregularities before they become problems
• Developing recurring revenue streams

What makes a valuation defensible?

Defensible valuations follow established standards (such as those from the American Society of Appraisers or AICPA), use appropriate methodologies, document all assumptions, and are performed by qualified professionals. Courts and the IRS reject valuations that lack proper support or methodology.

Take the Next Step

Understanding business valuation fundamentals puts New Jersey business owners in a stronger position—whether planning for the future, navigating a transaction, or responding to unexpected circumstances.

For specific guidance on valuation needs, including estate planning, succession planning, or transaction support, Curchin’s valuation professionals provide the expertise and objectivity business owners need.

Contact Curchin to discuss how a professional valuation can support your business decisions.