You may be looking to get a business property valuation for a number of reasons. Be it for taxation, insurance, or even to take out a loan, you will need a trusted service from a professional business valuation company in Melbourne. Your go-to person during the valuation process is a qualified, independent valuer.
The valuation of commercial property differs from one prepared for residential real estate. Understanding how it works can help you take the next steps in finding your business' value. Now let's explore how property valuations are carried out in a business setting. We’ll touch on how it works, the different methods used, and the benefits thereof.
How does property valuation work for businesses?
Valuations for different types of property follow somewhat similar steps. Here’s how it usually goes:
A valuation company is approached, an appointment is scheduled, and the property owner prepares for the assessment. Thereafter, an expert in the field is sent out to do an analysis of your property and the market. This is a bit different for businesses. More information is needed in order to compile a thorough valuation report. This includes the following:
- The company’s capital and its management structure.
- Records of past and reports for potential future earnings.
- Backdated and current tax return receipts.
- Balance sheets stating all income, expenses and profit.
- Financial forecasts that predict future market conditions.
Apart from valuing a business' financial standing, the property in which the business operates is also valued. Market research is then done to compare similar properties, business operations, and market trends. From there, the overall monetary value of a business is determined.
What are the methods of valuation for commercial property?
The methods of valuation can be used separately or together to calculate the value of your business. Although there are many, your valuer will have the knowledge and experience to choose the most suitable ones.
There are many methodologies used for the assessment of commercial property. The three main ones are the comparable or market approach, the income approach, and the asset approach.
These methods are based on many factors. The most important five are as follows:
- Market Benchmark
- Return on Investment (ROI)
- Capitalisation of Earnings
- Discounted Cash Flow (CDF)
- Asset-based
A business's internal finances and operations are valued by the variables listed above, but there are also external elements that are taken into consideration. Here they are:
- The replacement cost of the building should anything happen to it (natural disaster, damage, etc.)
- The value calculated in comparison with other commercial properties that are already on the market
- Physical aspects like location accessibility, overall property size, age and condition, and its readiness for use
A professional valuation can be a useful starting point to begin negotiating with the seller, but the how much the buyer is willing to pay is the deciding factor of the final sale price.
Now that you know what methods are used, you may be wondering how it can benefit business owners. We'll outline some of the advantages for you.
The benefits of getting a commercial property valuation
Understanding the worth of your property has a tonne of advantages, other than helping buyers and sellers determine a reasonable selling price. Below we will list the top ten perks that come with getting a commercial property valuation.
- For accounting purposes and to aid future financial planning.
- To determine how much opportunity there is for development or expansion within the business.
- For the submission of Capital Gains Tax (CGT) after the sale of commercial property.
- To help with planning for succession or inheritance, post-retirement or when drawing up a will.
- To determine the value of your property so that you can get sufficient insurance coverage.
- To claim for damages after a tenant's lease comes to an end and repairs have to be made to the property.
- For determining a fair rental amount compared to other rental commercial properties on the market.
- To control expenses on a property and determine whether they have an impact on its value.
- To determine a property's ideal function and its potential for multipurpose use.
- For banks and private moneylenders to secure collateral for repayment of a loan.
Property valuation for a business loan
Other than starting a business, loans are usually taken out to expand its operations, stay in operation, or cover the cost of unplanned expenses.
Property valuation reports are crucial for any kind of loan security, and even more so for the commercial sector since larger sums of money are involved. The value of any assets on the property will be secured as collateral. In the event that the loan cannot be repaid, this guarantees that the moneylender will still receive something of equal value.
What makes a property valuation valid?
The validity of your property valuation depends on who conducts it. An independent assessment carried out by a trained professional will hold the most credibility.
Human error could compromise the outcome of your valuation, but this is highly unlikely. If you have it done by a business or property valuer working for one of Melbourne's top valuation companies, you’re guaranteed to receive an accurate report.
Business valuers who are members of the Institute of Public Accountants (IPA) will be your best option in order to get a valuation of the highest standard. Commercial property valuers who are registered with the Australian Property Institute will also give you a high quality valuation service for your property.
In Conclusion
Small start-up businesses to large corporations can be valued. Valuing your company can be beneficial in a number of instances. An authentic report can help you prepare for taxes or any other legal matters. It can also be helpful when you’re taking out a loan or insurance.
A business valuation is also looming for business owners who want to sell or transfer the ownership of their business. Such assessments are also requested by investors so that they can have an estimate of the potential return on their investment beforehand. This will help them decide if the investment will be worthwhile.
Our team of 15 expert valuers at Business Valuation Melbourne is fully equipped to provide you with great service. They have over 300 years of combined experience. This means that they can handle the valuation of big or small companies. Contact us today to speak to our valuers about how they can help you find the value of your commercial property.