You’ve spent years building your business. Early mornings, difficult decisions, invested profits. It all adds up to something real. Something that employs people, serves customers, and supports your family.
Then comes a moment when you need to know: What’s it worth?
Maybe you’re considering retirement. Bringing in a partner. Securing a loan for expansion. Settling a divorce. Planning succession with your kids.
Whatever the reason, you need a number you can trust.
If you’re expecting that number to match what’s on your balance sheet or last year’s tax return, here’s what you need to know: It won’t. But that might be good news.
Why Your Tax Returns Don’t Tell the Full Story
Most Kansas business owners run their books to minimize taxes, exactly as they should. You depreciate equipment aggressively, run reasonable expenses through the business, pay yourself strategically, and structure transactions with the IRS in mind.
That’s smart business management.
But when it comes time to value your company, those same smart decisions can make your profits look artificially low. A credible valuation adjusts for this reality, revealing what your business can earn under normal, sustainable operations.
For many business owners, that adjusted value can be 20-40% higher than their tax returns suggest.
What Gets Adjusted (And Why It Matters)
A professional valuation looks beyond your reported numbers to show your business’s true economic performance. Here’s what that typically involves:
Removing One-Time Events
Every business has unusual years. You settled a lawsuit. Replaced a roof after storm damage. Lost a major customer. Won a one-time contract.
These events affected your bottom line, but they don’t represent normal operations. Buyers aren’t purchasing your past; they’re purchasing your future.
Removing these one-time impacts shows what a typical year looks like.
Normalizing Your Accounting
Your books are set up for tax compliance, not industry comparison. Valuators adjust things like:
- Depreciation methods that don’t match industry standards
- Cash basis accounting converted to accrual for comparability
- Lease structures optimized for taxes rather than market rates
- Old receivables that should have been written off years ago
These adjustments don’t change what happened. They just put your numbers in a format that allows fair comparison to other businesses in your industry.
Accounting for Owner Benefits
You didn’t build your business to maximize its sale price. You built it to support your life and minimize your tax bill.
That might mean:
- Paying yourself below market rate to reduce payroll taxes
- Employing family members who aren’t actively involved
- Running personal vehicles or travel through the business
- Structuring distributions for tax efficiency rather than reported profit
Valuators adjust for these “owner benefits” to show what earnings would look like under independent ownership. Not because you did anything wrong but because buyers need to see what they can realistically expect.
Important note: These adjustments apply to controlling ownership interests. If you’re valuing a minority stake that can’t change company policies, these adjustments may not be appropriate. Context matters.
Recognizing What’s Not on Your Books
Some of your most valuable assets never appear in your financials:
- Proprietary systems or processes you’ve developed
- Customer relationships and brand reputation
- Patents, trademarks, or trade secrets
- Trained workforce and company culture
Likewise, some obligations aren’t recorded:
- Warranty commitments on past work
- Pending legal matters (even small ones)
- Aging equipment that’s “fully depreciated” but due for replacement
- Real estate or vehicles you own personally but the business depends on
Each of these factors affects value. Professional buyers will account for them and adjust their offers accordingly.
What This Means for Different Business Situations
If you’re planning to sell in the next few years: Understanding these adjustments now gives you time to make changes that maximize value. Clean up your books, separate personal expenses, document your systems. All of this becomes easier to adjust for when done proactively.
If you’re bringing in partners or investors: These adjustments show potential partners what they’re buying into. Your tax-optimized P&L might show $200K in profit, but the adjusted EBITDA showing $350K is what partners need to see.
If you’re seeking financing: Lenders look at adjusted earnings to determine loan capacity. The bank needs to see sustainable cash flow, not tax-minimized profits. Proper adjustments can mean the difference between qualifying for the loan you need or falling short.
If you’re planning family succession: These adjustments help you and your children understand the real value being transferred, which is critical for estate planning, fair treatment of non-active children, and realistic transition planning.
If you’re going through divorce: Business valuation in divorce proceedings requires especially careful adjustment analysis. Both parties benefit from understanding what’s real operational performance versus tax planning strategies.
Why Timing Matters
The best time to understand your business value is well before you need to.
Here’s why: If you wait until you’re actively selling, seeking a loan, or facing a deadline, you’re stuck with your numbers as they are. But if you look 12-18 months ahead, you have time to:
- Clean up accounting inconsistencies
- Separate personal and business expenses clearly
- Document proprietary systems and processes
- Address any red flags that might concern buyers or lenders
- Make operational changes that increase value
Think of it like getting your house ready to sell. You could list it as-is and hope for the best. Or you could take six months to paint, repair, and stage it properly. The second approach almost always yields better results.
Who This Matters for Most
You’re in the right place if you:
- Own a business worth $1M+ and are thinking 3+ years ahead
- Need financing but worry your tax returns don’t show enough income
- Are planning family succession and need to establish fair value
- Have partners and need clarity on buy-sell agreement valuations
- Are considering retirement in the next 5-10 years
- Recently received an unsolicited offer and wonder if it’s fair
This might not be your priority right now if:
- Your business is under a year old
- You’re focused on survival, not exit strategy
- You have no plans to ever sell, bring in partners, or transfer ownership
- Your business is simple with minimal owner involvement
How CGP Group Helps
We’ve helped dozens of Kansas business owners understand their true business value and prepare for whatever comes next.
What we do:
- Clarify where your business stands today, what the numbers mean, and which adjustments matter most for your situation.
- Guide you through improving value systematically, whether you’re selling next year or planning for the next decade.
- Prepare you for the valuation process itself, coordinating with appraisers, lenders, attorneys, or buyers as needed.
Want to understand where your business stands? We offer a straightforward valuation readiness review for established Kansas business owners. We’ll look at your financials, identify the key adjustment areas, and give you clear guidance on what matters for your situation.
