How to value a business in Australia

How to calculate what a business is worth

For owners who want the arithmetic before commissioning anything

Normalised earnings multiplied by a market-derived multiple, cross-checked against net assets, then bridged to equity value.

The part owners consistently underestimate is normalisation. Reported profit is a tax outcome, not an economic one, and the gap between the two is where most of the argument in any valuation happens. Before you can compare your business to a sector multiple, the earnings have to be on the same basis as the businesses that set that multiple.

Key figure

2.0×–5.0× EBITDA for most Australian SMEs

Watch out for

Applying a sector multiple to unnormalised accounting profit

What a valuation costs, and why quotes vary so much

For anyone comparing quotes from two or three firms

Low four figures for an indicative assessment, mid four figures for a formal SME report, five figures for multi-entity or court work — always fixed and quoted up front.

The word "valuation" covers a one-page calculation and a court-ready expert report, so comparing price without comparing deliverable is meaningless. Ask three questions of every quote: how many methods will be applied, is the asset schedule evidenced or taken at book value, and does it carry a signed valuer’s declaration. A free valuation is a lead magnet — the cost arrives later, when the ATO or the other side’s expert rejects it.

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The fee should never vary with the value concluded

Watch out for

A cheap quote with no cross-check and no declaration

Valuing your business before you sell

For owners 12–24 months out from going to market

Get the valuation 12 to 18 months before listing, so there is time to act on what it reveals.

A valuation obtained the week before listing tells you the score with no time left to change it. Obtained early, it becomes a work plan: it identifies which of owner dependence, recurring revenue, customer concentration and earnings consistency is costing you most, and quantifies what fixing each is worth. Sellers who do this routinely move a full turn of EBITDA — on $700,000 of earnings, that is $700,000 of price.

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A full turn of EBITDA is a common 18-month gain

Watch out for

Letting the buyer’s adviser set the first number

Business valuation for family law and divorce

For separating parties and family lawyers

Single expert or shadow expert reports prepared to the Federal Circuit and Family Court expert evidence rules, scheduled to the court timetable.

A single expert is appointed jointly and owes an overriding duty to the court, not to the party paying. A shadow expert is engaged by one side to test the single expert’s work and is usually privileged. Both are attacked on the same three points: the add-backs, the maintainable earnings period chosen, and whether personal goodwill was properly separated from transferable goodwill in an owner-run business.

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Typically 4–8 weeks, set by the court timetable

Watch out for

A valuation not written to the expert evidence rules from the outset

Shareholder exits, buy–sell agreements and partnership disputes

For departing shareholders, remaining owners and their lawyers

Read the deed before valuing: it sets the standard of value and usually decides whether a minority discount applies.

Most shareholder disputes are not arguments about arithmetic, they are arguments about basis. A deed specifying "fair value" often excludes minority discounts; one specifying "market value" generally does not. On a 25 per cent parcel the difference can be 20 to 35 per cent of the answer. An expert determination clause also usually makes the conclusion binding, so the scope of the appointment matters as much as the analysis.

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Minority discounts commonly range 15–35%

Watch out for

Valuing before anyone has read the shareholders agreement

Valuations for the ATO, CGT and restructures

For accountants and owners facing a CGT event or restructure

The ATO accepts a valuation that states its standard of value, valuation date, methodology, assumptions and evidence, and carries a signed declaration from a qualified valuer.

Market value substantiation matters for CGT events, small business concessions, Division 7A, trust restructures and superannuation fund holdings. The common failure is not the number but the file: a conclusion with no documented evidence behind the multiple cannot be defended on review years later. Note the valuation is usually required at a prescribed historical date, using only information knowable then.

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The valuation date is often historical, not current

Watch out for

Using hindsight the market did not have at the valuation date

Valuations for banks, lenders and investors

For businesses raising debt or equity

Lenders want net asset backing and serviceability evidence; investors want earnings quality and a defensible forecast.

The two audiences read the same report differently. A credit team goes to the asset schedule, the security position and whether normalised earnings cover the proposed facility. An investment committee goes to revenue quality, customer concentration and the forecast assumptions. A report that anticipates both — with sensitivities run on the two or three assumptions that move the answer most — clears committee faster than one presenting a single confident number.

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Run sensitivities on the 2–3 assumptions that matter

Watch out for

A forecast with no downside case

Goodwill and intangible assets explained

For owners who want to know what is actually saleable

Goodwill is the residual after net tangible assets are deducted from total business value — and only the transferable part is worth anything to a buyer.

Personal goodwill — your relationships, your reputation, your licence — generally cannot be sold. Transferable goodwill — systems, contracts, brand, a trained team, a customer list that stays — can. Identifiable intangibles such as registered IP, software and contract rights are valued separately from the residual. This is why two businesses with identical profit sell for very different prices, and why reducing owner dependence literally converts personal goodwill into transferable goodwill.

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Goodwill is derived, never assumed

Watch out for

Counting the owner’s personal relationships as saleable value

Startup and early-stage company valuation

For founders raising capital or issuing equity to staff

Pre-revenue companies use Berkus, Scorecard or Venture Capital methods; post-revenue growth companies use risk-adjusted DCF.

There are no maintainable earnings to capitalise, so early-stage methods price risk and potential rather than history. Investors accept them; the ATO is more demanding when the same valuation supports an employee share scheme or a related-party issue. Founders should also expect the cap table, option pool and convertible instruments to be tested — those routinely change the per-share answer more than the enterprise value does.

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Terminal value often exceeds 50% of a DCF result

Watch out for

Treating a funding-round headline as market value

Valuation multiples explained

For anyone who has been quoted a rule-of-thumb number

A multiple is a price for risk and durability of earnings, not a sector badge — and it is derived, not looked up.

The sector sets a band; the business decides where in the band it sits. Owner dependence, recurring revenue percentage, customer concentration, earnings trend and capital intensity explain most of the spread within any industry. This is why a systemised business in a low-multiple sector routinely outsells a fragile one in a high-multiple sector, and why a rule of thumb quoted over the phone is worth what you paid for it.

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Five factors explain most within-sector spread

Watch out for

Treating an industry average as your number

What a valuation report should contain

For anyone about to receive or review one

Instructions, standard of value, business and industry analysis, normalisation schedule, method selection, calculation, cross-check, assumptions and a signed declaration.

A formal report runs 30 to 60 pages. Its job is to let a third party — an ATO officer, a credit team, an opposing expert, a judge — trace the reasoning from raw financials to conclusion without asking you a question. When reviewing one, go straight to the normalisation schedule and the paragraph deriving the multiple. If either is a single unexplained figure, the report will not survive scrutiny no matter how the rest reads.

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30–60 pages for a formal SME report

Watch out for

A multiple stated without the evidence behind it

How to choose a business valuer

For owners, accountants and lawyers appointing an expert

Check the accreditation, then the independence, then whether they have given evidence — in that order.

Anyone in Australia can call themselves a business valuer. Look for a Certified Practising Valuer accredited by the Australian Valuers Institute or Australian Property Institute, ideally with a business-specific accreditation as well. Then check independence: a broker who also values has an interest in the transaction happening. Finally ask whether they have given expert evidence — a valuer who has been cross-examined writes very differently from one who has not.

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CPV, CBV and statutory registration are the markers

Watch out for

Appointing the broker who wants to sell the business