Twelve purposes · One standard

Why you need a business valuation

The purpose decides the standard of value, the valuation date and the person the report has to convince. A valuation prepared for a sale answers a question the ATO did not ask, and one prepared for a bank emphasises the wrong things for a court.

Below are the twelve reasons Australian businesses are valued, what each report must contain, and the errors that get valuations rejected in each setting.

See all twelve Compare the methods

Transactions

When money is changing hands

Sale and exit Selling a business Commission it twelve to eighteen months before you list, so the findings are still actionable. The report tells you what the business is worth and what is holding the number down. Valued at: Most recent year end, with current trading Acquisition Buying a business An independent test of the vendor’s add-backs, concentration and asset register — before you sign, or under a condition, rather than after due diligence has already anchored the price. Valued at: Current, on the latest accounts Funding Bank finance and capital raising Lenders test asset backing and serviceability; investors test earnings quality and the forecast. The emphasis in the report changes depending on who is reading it. Valued at: Current, with a tested forward view

Tax and the ATO

Where market value has to be substantiated

Capital gains tax CGT and the small business concessions Market value substantiation for a CGT event, including the $6 million net asset value test. Documentation is what gets accepted, not the number. Valued at: The date of the CGT event Private company dealings Division 7A Asset transfers, loan forgiveness and share transfers between a private company and its shareholders or associates, valued on an arm’s length basis. Valued at: The date of the dealing Equity incentives Employee share schemes A defensible per-share market value at grant date, fully diluted for the option pool, convertible notes and preference terms. The cap table does half the work. Valued at: The grant date

Disputes and separation

Where the report will be tested

Family law Family law and divorce Single expert and shadow expert reports written to the Federal Circuit and Family Court expert evidence rules, scheduled to the court timetable. Valued at: As directed, or the date of separation or trial Shareholders Buy–sell agreements and shareholder exits Read the deed first. It usually prescribes the standard of value, the date and whether a minority discount applies — and it overrides what either party assumes. Valued at: The date the deed specifies Partnerships Partnership dissolution The business, the assets and each partner’s capital position established independently, with goodwill and work in progress addressed on the evidence. Valued at: The date of dissolution

Estates, distress and compliance

Where a third party sets the standard

Estates Deceased estates and probate A business interest valued at the date of death for probate, administration and distribution — including how much goodwill survived the deceased. Valued at: The date of death Insolvency Insolvency and administration Going concern, orderly liquidation and forced sale values, with assets inspected rather than taken from a register. Urgent capability available. Valued at: The appointment date Immigration Business migration visas Independent evidence of net business assets and ownership for business and investor visa streams, written so a case officer can rely on it unaided. Valued at: As the visa criterion requires Insurance Insurance and business interruption Sums insured set on the basis the policy requires, insurable gross profit calculated properly, and interruption claims quantified against a counterfactual. Valued at: Current, or the date of loss

The common thread

What every valuation must state, whatever it is for

Valuations are rejected for missing documentation far more often than for an unreasonable number. Whether the reader is a buyer, a credit team, a case officer or a judge, they are looking for the same six things before they consider the conclusion.

Every report we sign carries all six, and is prepared by a Certified Practising Valuer of the Australian Valuers Institute.

The purpose and the instructions Who engaged us, what question we were asked to answer, and on what terms. A report that does not state its purpose cannot be assessed against it.
The standard of value Fair market value, fair value, market value as the ATO applies it, or whatever a deed prescribes. These are different standards and they produce different numbers.
The valuation date And why the information relied on is relevant at that date. Hindsight is excluded, and where later events are mentioned the report says so.
The methodology and why The primary method, at least one cross-check, and the reasoning for choosing them over the alternatives for this business.
Assumptions, limitations and evidence Every assumption disclosed, every limitation stated, and the evidence identified and dated — including information requested and not provided.
A signed valuer declaration With the valuer’s credentials and their independence stated. Every report we issue is signed by a Certified Practising Valuer of the Australian Valuers Institute.

Not sure which one you need? Tell us the deadline.

A free 15-minute scoping call establishes the purpose, the standard of value and the date — then a fixed fee in writing before anything starts.

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