Quick answer
A business valuation is an independent opinion of what a business, or an interest in it such as shares, is worth at a date and for a purpose. Valuers use income, market or asset-based approaches, chosen to suit the business, and the report explains the method, the inputs and the assumptions behind the figure.
A business valuation sets out what a business is worth, and a share valuation does the same for an interest in it, such as shares in a private company or a partnership share. This guide explains the methods, when you need one and what affects the figure, and it links to our business valuation service.
We are certified registered valuers, not tax advisers or lawyers. We value the business and explain the reasoning, and your accountant or solicitor advises on what it means for the tax or the dispute. Where the purpose is an acquisition, see our guide to purchase price allocation.
In this guide
What can be valued?
A valuer can value the whole business or a part of it:
- A going concern: the business as a trading operation
- Shares and equity interests: shares in a private or unlisted company, shareholder and partnership interests
- Goodwill and intangibles: brands, customer relationships and intellectual property
- The assets of the business: property, plant and equipment, which may be valued separately by a plant and equipment valuer or property valuer
The three valuation methods
The right method depends on the business and the purpose. Valuers follow the International Valuation Standards and, in Australia, APES 225 Valuation Services, and the report explains which method was used and why.
| Method | How it works | Often suits |
|---|---|---|
| Income approach | Values the business on the earnings or cash flows it is expected to generate, for example by capitalising maintainable earnings or discounting future cash flows | Trading businesses with a profit history |
| Market approach | Compares the business with similar businesses or transactions, using multiples drawn from market evidence | Where reliable comparable sales exist |
| Asset-based approach | Values the net assets of the business, adjusted to market value | Asset-heavy businesses, holding companies and wind-downs |
When do you need an independent valuation?
Business and share valuations are most often needed to:
- Sell, buy or merge a business and agree a fair price
- Set a buy-sell price between partners or shareholders, or settle a shareholder dispute
- Divide assets in a family law property settlement
- Support tax planning, succession and estate matters
- Allocate the price after an acquisition, or report fair value in the accounts
- Support a loan, a restructure or an insolvency process
Need a business or share valuation?
Tell us about the business, the purpose and the date and we will confirm the scope and the fee before any work begins.
What affects the value?
The value depends mainly on:
- The profit the business can reliably keep earning (maintainable earnings)
- How dependent the business is on its owner
- Its assets and its debts
- The strength of its customers and contracts
- The risks in its industry and the state of the market
What a valuer needs from you
The list depends on the job, and we confirm it at the free consultation. In general:
- Several years of financial statements, management accounts and tax returns
- Details of key contracts, leases and customers
- A list of assets and liabilities
- The constitution or shareholders' agreement, for a share valuation
- The purpose of the valuation and the date you need the value for
Mistakes to avoid
Common mistakes:
- Relying on a rule of thumb. Industry multiples are a starting point, not a valuation.
- Ignoring owner dependence. A business that relies on one person is usually worth less than one that does not.
- Using one year's profit. Valuers look at a pattern, and adjust for one-off items.
- Valuing a minority share as a slice of the whole. The rights and the ability to sell the interest affect its value.
Key terms explained
- Going concern
- A business that is expected to keep trading, as opposed to one that is being wound up.
- Maintainable earnings
- The level of profit a business can reasonably be expected to keep earning, after adjusting for one-off items.
- Goodwill
- The value of a business over and above its identifiable assets, such as its reputation and customer base.
- Minority interest
- A shareholding that does not control the company. It can be worth less or more than its share of the whole, depending on its rights and how easily it can be sold.
- APES 225
- The professional standard that sets out requirements for members of Australian accounting bodies who provide valuation services.
Need a Business valuation? Talk to a valuer.
Tell us the property, the date you need the value for and what it is for. We will tell you what is needed and what it involves.
Free first call. Fee confirmed before work starts. Certified Practising Valuer. Australia-wide.
Sources and further reading
This is general information, not tax advice. Speak to your accountant or tax adviser about your own position. A valuation sets out market value at a stated date. It does not work out your tax.