How to Value a Business
The valuation of businesses is not an exact science. Several methods and guidelines exist for each type of valuation. Application of these must be tempered by professional judgement and experience. The process quite often involves comparing several different approaches. The valuer then selects the best method, based on knowledge and experience. To be accurate, a comprehensive valuation should take into account all aspects of the company’s business. These aspects will include factors which may be difficult to value and that do not show up on financial statements.
Australia Wide Valuations
Three broad approaches used by Business Valuers are:
The Income Approach
The Market Approach
The Cost or Asset Approach
Professional practices, Real Estate Agents, and Medical and Veterinary Practices may utilise a different approach.
Family Court Valuations sometimes also necessitate the use of another approach
Every business owner should have their business valued by a qualified valuer at least once every five years or when business circumstances change. This will give a business owner a greater understanding of the company's value over time.
Business Valuation Situations
A valuation is not just for a business owner preparing for a sale. There are numerous business and legal situations that require or that will benefit greatly from a detailed valuation. Among these situations are:
Judicial authorities often require a valuation for legal matters, such as shareholders disputes, or breach of contract disputes. Family Law matters are a particular area where there is a need for a detailed concise and accurate valuation report.
Detailed Valuations not only assist a business owner in determining the value of their business, they also help them maximise value when considering a sale, merger or partnership
BANKS & FINANCIERS
Lending authorities are now increasingly requiring a Valuation when business owners require loans or refinancing
Detailed valuations identify what's needed to increase the value of the business or attract new capital.
Business purchasers place more credibility on a valuation performed by an independent third party.