Business valuation is the process of determining the economic value of a company, typically using income, market, or asset-based approaches. For closely held businesses, valuation often considers normalized earnings, capitalization or discounted cash flow models, comparable-company multiples, and adjustments for control and marketability. In the insurance and planning context, business valuation underpins buy-sell agreements, estate and gift planning, executive compensation, and insurance coverage amounts for key-person and buyout funding. A credible valuation helps owners negotiate fairly, manage tax exposure, and ensure that insurance solutions match actual economic risk.

Advisors rely on business valuation reports prepared by CPAs or credentialed valuation professionals when designing buy-sell funding or estate equalization strategies. They use valuation figures to determine appropriate face amounts for owner and key-person policies and to document financial justification for large cases to underwriters. In family enterprise planning, valuations inform gifting strategies, ESOP implementations, or partial interest sales. Advisors also explain the difference between informal rule-of-thumb estimates and defensible, well-documented valuations that stand up to IRS or transactional scrutiny. Understanding business valuation allows advisors to ground their planning recommendations in disciplined financial analysis rather than guesswork.