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How to do a Business Valuation A realistic business valuation is more than merely looking at last year's financial statement. A valuation will have a thorough analysis of several years of the business operation and an opinion about the future outlook of the industry, the economy and how the company will compete. The information that one should be looking for relates to all areas of the business, both financial and non-financial.

First steps should be to compile and summarise financial statements for the last 3 years, i.e. tax returns, profit and loss statements, etc.

Identify and document positive business trends, future potential of the business based on independent reports, any areas where the business can be improved and any potential obstacles to scale.

How is a business valuation compiled? Look for recent value and sale prices of similar or equivalent businesses as a reference. Analyze assets associated with your business like property and infrastructure, established customer base, employees, and future profitability of the business.

Identify any liabilities of your business like money owed, costs involved with equipment upgrades, and repairs or maintenance required.

Be careful while using sum formulas in excel. If you have subtotals, and totals, ensure that correct cells have been selected while calculating sums. No entry should be included twice, especially the cells containing subtotals.

Avoid hardcoding numbers if possible. When you need to make an assumption about a number, create an input cell in a separate area and refer to that cell in your model or formula.

Scan for formula errors. Check if the formula in parenthesis is the way it should be. Verify for one or two data sets, before you actively use it in your model.

You are likely to make more mistakes if you have a large formula. Simplify the number of steps of large formula into smaller, doable steps that you can check and pinpoint errors far more quickly.

Ensure that the numbers are entered at the right places. Be clear in using relative referencing and where to use absolute referencing. Use absolute referencing to lock in places for certain values. This is important especially when you have the same formula replicating in many cells.

Very often models are built from a source file that has come through e-mail. It is extremely important that the source file data is accurate and usable for further modeling or references.

Mixing up positive and negative numbers is a very common error in a cash flow model, any outflow should carry a negative sign and any inflow a positive sign.