If you own or manage a business, you need to stay on top of all operations. Part of this is understanding the true value of your organisation. This is where business valuations in Melbourne come in handy.
A valuation report from a qualified expert gives owners a definitive outline of the existing financial state of the organisation. Knowing where you stand financially immediately allows for much improved strategic planning and decision-making going forward.
An independent business valuation is prepared by skilled professionals with backgrounds in commercial and financial accounting. With a deep understanding of finance and experience in the valuation industry, these specialists can prepare precise and comprehensive business valuation reports.
Owners who have a misguided view of their organisation’s worth are far more likely to make decisions they may regret later. A valuation can help to make sure that this is never the case for you.
Valuation services for companies are wide-ranging and can prove useful in several circumstances. Learning about the process can lead to a more thorough idea of how companies are valued.
What methods do business valuers use?
There are several different methods that experts follow when preparing business valuation reports. By using a combination of tried and tested methods, valuers can reach precise final figures.
Valuers most commonly apply the following three methods when preparing business valuation reports:
Capitalisation of future maintainable earnings method
The value of the business is determined according to the net economic benefits that the business expects to receive. The valuer focuses on historical financial statements to inform the calculation regarding future maintainable earnings.
Financial statements are reviewed to determine the earnings before interest, tax, depreciation and amortisation (EBITDA). All items outside standard business practices are removed such as non-cash items and inconsistent expense variables. Once valuers have made their calculations, the figures are weighed against industry-based multiples and ATO-based benchmarks.
Discounted cash flow method
Valuers using this method focus on predicted cash flow forecasts. Its purpose is mainly to assist companies planning investment opportunities with tracking and interpreting the impact of the investment.
Not all businesses have cash flow forecasts, and the size of the business often plays a role in whether or not this is a suitable method. A range of formulas are used to analyse and interpret net future cash flows and a risk factor is considered. The DCF methodology is not always as accurate as the maintainable earnings method as it relies heavily on predicted income.
Net assets method
This method is most commonly applied in cases where the business is unlikely to earn a positive return on its assets and has limited or no goodwill left. As valuers do not predict future income, the focus is placed solely on the value of the tangible and intangible assets weighed against the financial liabilities.
With the approach not looking at operating income or profits, it’s mostly used when businesses are closing down.
Why get a business valuation?
The reasons to get a business valuation are plenty, and owners will want to take full advantage of the reliable valuation service.
A few of the main reasons people get business valuations are:
- Pre-sale guidance: Getting definitive proof of an organisation’s market value can inform the selling price you set. The business valuation will serve as the premise for any offers made and negotiations are not stalled due to disagreements over market value.
- Reviewing a company’s growth: A business valuation can give you a clear idea of the organisation’s growth over time. Running a business means making sure your liabilities don’t outweigh your assets and consistently monitoring cash flow and income. A detailed valuation can help you keep track of operations as a whole.
- Securing funding: A valuation serves as conclusive proof of market value when searching for potential investors or lenders for finance. A high valuation that indicates reliable turnover and a positive balance sheet will likely attract investors.
- Preparing for a merger or acquisition: Business valuations form a key part of mergers and acquisitions. The independent report serves as protection for the shareholders of each company and provides key information regarding operations, finances, and market position.
- Strategic planning: An informed business owner is in a good position to make decisions that benefit the organisation in the long run. A business valuation covers every necessary detail and allows owners to meticulously plan for the future.
Final word
The importance of independent business valuations is clear. Anyone with a vested interest in an organisation serves to benefit from objective and comprehensive valuation reports.
These services are performed by qualified professionals with backgrounds in commercial and financial accounting. Valuers consider a number of factors including financial statements, cash flow predictions, assets and liabilities, and market conditions when preparing the reports.
As trained professionals, business valuers have a unique insight into business operations and assessing value. They use a combination of reliable methodologies to reach accurate final figures.
There are countless benefits to knowing the true market value of your business. From general strategic planning to assisting with settlement negotiations, a certified valuation report can prove useful in all sorts of circumstances.
If you’d like to know more about business valuation services in Sydney, feel free to give us a call. .