What is a valuation diagnosis and what is it for?

A valuation diagnosis is an assessment done before a sale process or before full preparation: it delivers a value range and a read on what the business has in order and what is missing. It does not replace the valuation the buyer will do in due diligence or a formal report for financing; it helps align expectations, prioritize what to get in order, and decide whether it makes sense to open a process now or later. This guide explains what it is, what it's for, what it typically includes, and when it makes sense to get one.

What is a valuation diagnosis?

It is a deliverable — or a structured session with an advisor — that combines: (1) a normalized or approximate earnings base (e.g. normalized EBITDA with documentable or indicative adjustments), (2) a reference multiple range by sector and size, and (3) a list of gaps or risks a buyer would review (documentation, contracts, owner dependence). It is not a valuation opinion for the bank or a CIM for buyers; it is a snapshot of where the business stands today and in what range it could transact if the critical items are put in order.

What is it for?

It serves three main purposes:

• Align expectations. The founder or board stops operating with an unsupported number in mind; the diagnosis range — and the explanation of what drives it (sector, size, concentration, recurrence) — avoids the first offer feeling like a "lowball" or rejecting a reasonable price out of unfamiliarity.
• Prioritize what to get in order. If the diagnosis flags that reported EBITDA would not withstand scrutiny or that key contracts are missing, the next step is the guide on preparing the company for a transaction — not opening the data room without that.
• Decide timing. Sometimes the range suggests selling now makes sense; other times, that it makes sense to get things in order for a year or two and re-value. The diagnosis does not oblige you to sell; it gives you information to decide.

What does it typically include?

It depends on who does it; in a typical format for Mexican SMEs:

• Earnings base. Normalized EBITDA or SDE (or an indicative bridge from reported) with the most obvious adjustments documented or noted. The guide on normalized EBITDA adjustments in Mexico describes the most common ones.
• Multiple range. Reference by sector and size, with the caveat that the final multiple is set by the buyer. The guide on valuation multiples by sector in Mexico gives typical ranges.
• Gaps or risks. A short list of what a buyer would review: incomplete financials, contracts not reviewed, customer concentration, owner dependence. That orients next steps (prepare company, data room, advisor).

When to get one vs going straight to preparing or selling?

A diagnosis makes sense when you still don't have a clear value range or what to prioritize: a founder who has never sold, a board that wants a reference before authorizing a process, or a business with opaque finances. If you already know you will sell and have time to get in order, you can go straight to preparing the company and do the diagnosis in parallel or as the advisor's first deliverable. If a buyer has already made an offer and you want to benchmark, the diagnosis helps validate whether the range is reasonable before negotiating.