Anyone who runs or has a vested interest in a business can serve to benefit from independent business valuations. The purpose of a valuation is to provide conclusive proof of the company’s value. Knowing the true value of the business allows for well-informed financial decisions going forward.
A business valuation in Adelaide refers to a thorough assessment of a company to figure out its value in the existing market conditions. The valuation report is recognised in the eyes of the law and can be hugely beneficial in a number of circumstances.
Valuations are performed by a professional with a background in commercial and financial accounting as well as determining the worth of a company. With a unique insight into operations and finance, valuers can reach precise final figures in the reports.
A business valuation serves as your most reliable option to truly understand the value and financial state of your company.
Preparing for a business valuation
Valuations involve many calculations and a comprehensive assessment of several different documents. Properly preparing for a valuation can lead to a swift and effortless process for the parties involved.
Prior to the valuation service, you should make sure you have the following information readily available:
- Basic business information such as websites, physical addresses, and contact information.
- Three years of historical financial statements.
- Profit and loss statements as well as the balance sheet for the relevant year.
- Your latest tax return as submitted by the ATO.
The cost of the valuation will depend on the purpose and scale of the report. Requesting a quote can give you a good idea of how much the valuation is likely to cost.
A valuation will usually take around 5-7 days to complete. As such, you can expect accurate figures within about a week after the calculations begin. However, a valuation may take longer for a variety of reasons including the size of the company.
How to value a business?
In Adelaide, valuers use a variety of trusted methods when analysing a business. The most commonly applied of these methods are:
The capitalisation of future maintainable earnings method
Among the most popular of the business valuation methods, it involves a comprehensive analysis of historical financial statements. A formula is applied to help valuers predict future earnings; industry-based multiples and ATO key benchmarks are weighed against the income of the business. Valuers remove once-off expenses and inconsistent transactions to maintain a high standard of precision.
Valuers are also careful to consider industry standards and overall economic conditions when preparing reports. By meticulously anticipating future earnings, valuers can calculate the organisation’s fair market value. This method is often used for small to medium-sized businesses.
Discounted cash flow method
This method uses forecasted cash flow statements to calculate the existing value. For the most part, this approach is reserved for large companies that have the capacity to calculate future cash flow. Bigger organisations generally use cash flow forecasts to assess investment opportunities and weigh them against possible economic issues or risks.
Valuers use industry-based calculation formulas and use predicted earnings to determine the true market value in the existing market. All associated risks are considered during the calculation.
Net assets method
This method is mostly used in cases where an organisation is closing down. As valuers do not expect the business to turn any further profits and there is a lack of goodwill left, the value of the business is determined by assessing each asset.
All tangible and intangible assets are weighed against any existing financial obligations. With that, the true market value of the business is determined.
Common types of business valuation services
A business valuation service is most often needed in cases where a major change is about to take place. The benefits are wide-ranging and ultimately give owners and investors a much clearer and fuller picture of where the organisation stands.
A few of the common reasons to call on a business valuation service include:
Succession planning
Succession planning is a process and strategy for replacement planning or passing on of leadership roles. The purpose is to identify and develop potential leaders who can move into these roles when they become vacant.
A business valuation gives owners the tools to understand each part of their organisation, and therefore identify where replacements are needed.
Strategic planning
A valuation allows for careful strategic planning across every facet of the business. The reports allow organisations to get clear outlines of the strengths, weaknesses, opportunities and risks.
Business valuations lead to well-informed financial and operational decisions going forward. Owners and investors can therefore avoid unnecessary risks and issues.
Taxation
Tax is a part of our lives whether we like it or not. A valuation report can ensure that owners and managers know exactly how much tax is owed. Reports are also created in accordance with the requirements of the Australian Taxation Office (ATO).
A valuation can help make sure you have no issues with the ATO and meet all of your necessary taxation obligations.
Family court and settlement
Some business owners may find themselves in the midst of a settlement negotiation that requires a fair division of the business.
A valuation can ensure that each party is fairly compensated and lead to swifter and smoother negotiations. Parties do not need to waste time debating the true market value of the business.
Deceased estates
The unfortunate process of dealing with a deceased estate may involve a business that needs to be divided among the beneficiaries.
An independent business valuation gives the clear market value of the subject organisation and guarantees a fair division of the value.
In conclusion
Whether you’re an investor or an owner of a business, a valuation can serve to be massively beneficial. With a business valuation, you can get a definitive idea of just how much your business is worth in the existing market.
Valuation reports are prepared by qualified professionals with experience in financial and commercial accounting. By considering every relevant internal and external factor, valuers can prepare extremely accurate valuations of all types of businesses.
Preparing for a valuation can help make the whole process a smooth one. Getting the relevant financial documents and statements ready can lead to swift calculations. A valuation will usually take 5 to 7 days depending on the purpose and scale of the report.
Whether you’re looking to improve succession planning or need assistance with taxation, a business valuation can be a great help. If you’d like to know more about how business valuation services can benefit you, feel free to give us a call today.