WHAT YOU SHOULD KNOW ABOUT BUSINESS VALUATION

This website presents an introductory perspective of business valuation and our capability and services that is designed to provide potential clients with sufficient information to guide them in selecting professional valuation assistance.

Business Valuation is a very specialized area
Business valuation is a very specialized area of expertise and in reality there are just a handful of truly competent business valuers in Australia.
Valuation complexity
A major source of complexity is that a share in a business can have at least 5 different values, depending on the shareholder’s situation. In addition, a business itself can have at least 3 different values, depending on the potential purchaser’s situation.
One size doesn't fit all!
As a result of this widely misunderstood complexity, many people receive poor and ultimately costly valuation advice from their specialist compliance and taxation accountants and from business agents who tend to take a simplistic ‘one size fits all’ approach to business valuations.
Financial engineering
Problems can be further compounded by ‘financially engineered’ accounting reports that can mask serious valuation deficiencies.
Legal and Family Court valuations
These types of valuations are somewhat different to commercial valuations in that they require significantly more evidential detail, may require a different valuation standard or objective, must stand up to adversarial cross examination, and need to be presented in a format to assist the court. Because of these factors they are necessarily more expensive. It is preferable from both a time and cost consideration for the parties to agree to the engagement of a single professional valuer.
Don't pay too much
It is an unfortunate fact that a great number of small business buyers pay far too much for the businesses they buy. A good rule of thumb to check the fairness of the price to pay for a small business is that a principal and interest loan of 90% of the purchase price should be payable from the business after tax cash flow (after the owner draws living expenses) in under 5 years.
Don’t get locked in to a bad deal
Many small business buyers are shocked to find that when they apply this loan payback test after the fact, that the payback period of the loan (usually secured against their home) is 20 to 30 years.
Industry methods
Beware of business valuation methods promoted by industry associations or some franchise groups. Many such methods are designed to significantly inflate the price of businesses and as a result provide a very low return on investment for the risk involved. Don’t settle for any less than around a 20% return on investment after reasonable owners’ wages.
Don't sell for too little
On the other hand, many sellers of quality businesses receive far less than they deserve because of the 'one size fits all' valuation methods commonly used by many accountants and business brokers. Independent professional valuers can provide real value for you.
Cost effectiveness
It is always extremely cost effective to engage a professional valuer to assist in all critical business valuation matters. The relatively small cost of a professional, independent valuation can often save hundreds of thousands of dollars. Always check that the valuer you select is truly independent. For example, some business brokers offer discounted business valuations, often of a questionable quality, as an adjunct to their core business - i.e. selling businesses on a commission basis.
Quality assurance & standards
Professional Valuers often act as expert forensic witnesses and are called upon to defend their valuations under rigorous cross-examination in the Courts of Australia and therefore a very high level of research and attention to detail is required in preparing their valuation reports. Always that the valuation report is prepared in accordance with International Valuation Standard IVS 2007 & Australian Accounting & Professional Ethical Standard APES 225. This type of valuation is required for Legal, Family Court, Compliance & Tax valuations
Confidentiality
All client information is treated with the utmost confidentiality. We have a policy to never discuss current or past clients and their matters with anyone without the client’s express permission

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