How To Value a Business

Determining the fair market value of your business takes into account an amalgamation of variables and applies it to the current state of the economy and industry benchmarks. From this, our Senior Business Valuers will determine how to adequately calculate your business’s value by distinguishing a range of alternative methodologies. These include:

1. Capitalisation of Maintainable Earnings

This methodology uses your business’s historical financial statements against industry based multiples to calculate its value. Our team of Senior Business Valuers will use these financial documents to gauge the business’s value using a weighting method based on previous earnings.

Using this method, our team will assess areas of the business using financial statements and tax returns to calculate the Earnings Before Interest and Tax (EBIT). They will also look into any depreciation variables or payments and go on to normalise these earnings by excluding any one-off expense variables. Once this is calculated, it can be used to interpret future income against industry multiples and ATO benchmarks.

The Capitalisation of Maintainable Earnings is the most common method for determining a business’s value.

2. Net Based Assets Approach

As its name describes, a Net Based Assets approach is a formula that determines a business’s value based on the business’s assets, whether they be tangible or intangible. From this, our team of Business Valuers will analyse financial documents such as your Balance Sheet and value these assets against any financial liabilities. From this, we can determine the total worth of the business’s assets. Using the Net Based Assets Approach is usually reserved for businesses that are looking to close down, unlikely to turn a future profit or has limited or no goodwill.

3. Discounted Cash Flow (DCF) Methodology

Using this methodology means relying on the business’s project cash flow forecasts. The DCF methodology is usually reserved for larger entities who plan future cash flow to track and investment opportunities and the potential economic impact of these investments.

Similar to the concept the Capitalisation of Future Maintainable earnings, our Business Valuers use a business’s projections to calculate it back to the current market value. In turn, our team will apply a range of formulas to anticipated returns against any potential risks of the cash flow to present the business’s value.

For more information on how we can help you with you Business Valuation, reach out to our team of Business Valuers for expert advice on (03) 7036 1688.