How to Value a Business
Determining the value of any business requires thorough research and extensive due diligence across whole business operations and its performance within the local market. As such, our business valuers will research, analyse, and interpret business financials and apply a range of formulas to determine value.
The process of determining business value will vary depending on the business type and the purpose of the valuation. As such, our business valuers have the skillset to utilise industry standard alternative methodologies to reach an accurate value. There are three alternative methodologies that can be utilised:
Capitalisation of Future Maintainable Earnings
This methodology can be used on most small to medium enterprises for a variety of purposes. As such, we will use the business’s historical financial statements to determine the standard of operations of the business, then apply this performance to industry-sourced multiples and taxation benchmarks. Our business valuers will then apply a normalisation formula to eliminate any one-off expenses to account for any misinterpretation of earnings.
From here, our business valuers will apply these earnings to the overall performance of the economy and apply a weighting method to project anticipated future earnings. This will allow our valuers to gain a unique perspective on the business fair market value.
Net Assets Approach
The Net Assets Approach is only used in cases where the value of the business is only required to be sought out through the business’s assets. Our business valuers will review the business’s tangible and intangible assets and value these against any financial liabilities. As such, this methodology is only used for businesses with little or no goodwill left and are likely to close down. This is because it is assumed that the business will not likely turn a profit in the near future.
The Discounted Cash Flow Methodology
The DCF methodology focusses on the business’s projected cash flow statements that track anticipated earnings. Because not all businesses have the capacity to track projected cash flow earnings, this methodology is reserved for larger corporations or entities that use these projections to track investment opportunities.
While this methodology is quite exclusive, our business valuers have expertise to value any business structure with no restriction on methodologies used. As such our team can cater towards all business structures to provide a certified business valuation. If you require a business valuation, reach out to our expert on (03) 6311 1868 or complete an online enquiry form and we will be able to help you.