A valuation is a key service for many, especially business owners. The range of business valuation services in Melbourne that exists makes it massively beneficial for anyone who needs to know the worth of an organisation.
Valuations are performed by certified professionals who are trained and educated in completing comprehensive and detailed valuation reports.
Each one is a member of one of the regulatory accounting bodies in Australia such as CPA Australia, Chartered Accountants Australia and New Zealand and the Institute of Public Accountants. As valuers follow international valuation standards and custom-make each report to suit the client’s needs, it is the most reliable way of finding the value of a company.
These forensic accounting experts have spent years mastering the skill of attaching a monetary worth to a business as it stands. While preparing the reports, they consider several different factors and use all of the necessary information at their disposal.
What information is needed for business valuations?
There are a few ways to prepare for a business valuation. One of the key ways to get ready is to have all the necessary documentation organised. Some of the information that can help valuers includes:
- A copy of the title deed if you own the building
- The financial statements of the business
- Documents outlining all the assets of the property
- Information regarding any notable business features
- Copy of the lease for the business premises including any renewals and details on the size of the premises
- Loan agreements and key supplier/customer contracts
- Any relevant constitution/trust deed/partnership agreement/shareholders agreement; and
- Any previous valuations that may have taken place.
What is the most important part of a valuation?
The most important part of a valuation will depend on the purpose of the report. There are a few different business valuation methodologies that experts follow. While several methods exist, the most commonly used when it comes to business valuations are:
The comparables or multiples approach
This method places its focus on what similar businesses have sold for in the past. It is a commonly applied valuation approach and is used in several situations.
The approach uses publically and privately available data to determine the value of the business based on various financial metrics such as revenue, Earnings Before Interest and Tax (EBIT), Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and Net Profit Before Tax (NPBT).
Much like how residential valuers will look at the sales of similar properties in the area to determine an average price, business valuers adopt a similar approach when determining the market value of an organisation.
There are a few things valuers must consider when looking at other businesses, such as:
- Is the business of a similar size?
- Does the business serve a similar purpose?
- Is the customer base similar or the same?
- What notable factors impacted the business’s value?
By carefully considering each important factor, valuers can reach a precise final figure.
Discount cash flow model
Valuers who use this method place their focus on what the potential future earnings of the business might be. By predicting what the next few years will have in store for the business, valuers determine a value in the existing market conditions.
There are two primary influencing factors in a discount cash flow assessment that can massively impact the final value.
The first is the discount factor. This represents the level of uncertainty a valuer has about a company’s future earnings. The higher the discount applied, the less confident a valuer is regarding the future income of the business.
The second is the terminal value. A discounted cash flow requires a terminal value to be effective. This refers to the value assigned to all cash flow received after a certain date.
Often, a residual value or sale value is used instead, which would indicate that after a specified amount of time, the business would be sold for a particular amount.
Asset-based valuation
This approach looks at the total value of all of the assets of the business. It is an analysis of each separate component of the business including equipment, vehicles, appliances, patents, goodwill, and more.
The method is mostly used for asset-heavy businesses where the separate components do not allow for a consolidated approach. Valuers use elements of the other approaches but focus on building up the value from the separate parts to reach a final figure.
Summary
Getting an independent business valuation is your best route to finding out how much your organisation is worth. Professional valuers use a variety of different methods when performing the valuation to reach an accurate monetary worth.
Providing your valuer with all of the necessary information prior to the assessment can lead to a swifter and more reliable process. Owners should be sure to have all of the financial records, rental agreements or title deeds, customer contracts, shareholder agreements, and any previous valuations.
Certified business valuers use a combination of reliable methods to determine an accurate worth to assign to the business based on the existing market conditions. As experienced accounting professionals who have been trained in forensically analysing businesses, they can prepare comprehensive and accurate reports.
For more information on the information needed for a business valuation, our specialised experts are more than happy to assist. Feel free to give us a call today.