Business valuation for selling a business
Get an independent valuation twelve to eighteen months before you list, not the week you decide to sell. The report tells you what the business is worth today and, more usefully, which specific things are costing you value while there is still time to fix them.
A pre-sale valuation is the only document in the process written by someone with no interest in the outcome. A broker’s appraisal is a marketing estimate; a buyer’s offer is a negotiating position. An independent valuation is the number you negotiate from, with the reasoning attached.
The brief
Who reads it, and what it has to satisfy
The purpose sets the standard of value, the level of documentation and the person the report has to convince. Getting that wrong is the most common reason a valuation is rejected.
You first, then your accountant, your broker and ultimately a buyer’s adviser during due diligence.
Fair market value on a willing-but-not-anxious basis, typically for a 100 per cent controlling interest.
Usually the most recent completed financial year end, with current-year trading considered.
What the report must contain for this purpose
- A normalisation schedule itemising every add-back with its evidence
- The maintainable earnings figure and the weighting behind it
- The multiple derived from market evidence, with each adjustment listed
- A cross-check against a second method
- The bridge from enterprise value to equity value — debt, cash and working capital
- A value-driver section identifying what would move the number and by how much
Sequence
When to do what, working back from settlement
A valuation is most valuable when there is still time to act on it. This is the sequence we see work.
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01
18 months out — get the valuation
Establish the current number and, critically, the gap between where you are and the top of your sector band. This is the only stage where the findings are still actionable.
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02
12 months out — fix what it found
Usually: reduce owner dependence, convert relationships into contracts, clean up the accounts, resolve the lease. Each has a knowable value effect.
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03
6 months out — prepare the evidence
Three clean years of financials, contracts documented, asset register current, add-backs supported. Due diligence tests what you assert.
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04
At listing — update the valuation
A refreshed valuation at current trading gives your broker a defensible asking price and gives you a floor you understand.
Where it goes wrong
What costs sellers the most money
In our experience these five account for most of the gap between what an owner expected and what they achieved.
What the gap is usually worth
On a business with $500,000 of normalised EBITDA, moving from the bottom of a sector band to the top is commonly a difference of $500,000 to $750,000 in price. That is what twelve months of deliberate work is worth — and it is why the timing of the valuation matters more than the valuation itself.
- Valuing too late A valuation obtained the month before listing tells you what you have, not what you could have had. The value work takes twelve months and the returns are far larger than any negotiating tactic.
- Accepting a broker appraisal as a valuation An appraisal is a marketing estimate prepared by someone paid on the sale. It may be optimistic to win the listing or conservative to secure a quick sale. It is not independent and buyers know it.
- Unsupportable add-backs Every dollar of add-back you cannot evidence is a dollar a buyer removes in due diligence — and it damages your credibility on the ones that are genuine.
- Ignoring owner dependence The single largest swing factor. Moving from owner-run to manager-run is routinely worth a full turn of EBITDA, and it cannot be done in the last quarter.
- Leaving the lease to the end In any premises-dependent business, a lease with under three years remaining caps the price regardless of earnings. Renegotiate before you list, not during.
What we need
Documents for this engagement
The same information a buyer will eventually ask for. Assembling it now means the valuation and the due diligence pack are built once.
Open the standard checklist →- Financial statements — three years Profit and loss, balance sheet and notes for every entity
- Tax returns — three years As lodged, to reconcile against the statements
- Current-year management accounts Year to date, ideally month by month
- Add-back support Ledger detail for every adjustment you intend to claim
- Lease and key contracts Terms, options, assignment provisions and expiry dates
- Asset register and finance What is owned, what is financed and what is leased
Twelve to eighteen months before you intend to list. That is enough time to act on what the report finds — reducing owner dependence, converting relationships into contracts, cleaning up the accounts — and still show a buyer three consistent years. A valuation obtained the month before listing has almost no value beyond confirming a number.
Not necessarily. A valuation is an assessment of fair market value between a willing buyer and a willing seller, neither anxious. An actual price also reflects negotiation, deal structure, earn-outs, restraints, competitive tension and the specific buyer’s strategic position. The valuation gives you the defensible floor and the reasoning to argue above it.
That is a commercial decision, and it depends on the number. Where the valuation supports your asking price, a report from an independent Certified Practising Valuer is considerably more persuasive than a broker’s appraisal. Where it does not, it tells you what to fix before anyone sees it. Either way, you should know before the buyer does.
No. We are valuers, not brokers, and we do not list or sell businesses. Our fee is fixed and quoted in writing before work starts, and it never varies with the value concluded or whether a sale proceeds. That independence is the reason the report carries weight with buyers, banks and courts.
Then it has done its job while there is still time. The report sets out precisely which factors are holding the number down and what each is worth. Most owners who act on it for twelve months achieve substantially more than they would have by listing immediately at an optimistic price and negotiating down.
Reviewed by a Certified Practising Valuer
Reviewed by Jarrad Khoury, Director and Head of Valuations — Registered Valuer (QLD, Not Limited), Licensed Valuer (WA, Not Limited), CPV and CBV. Published by Business Valuations Brisbane, the business valuation division of Asset Valuations Group.
Last reviewed
Find out what your business is worth, while you can still change it.
A free 15-minute scoping call, then a fixed fee in writing. No obligation, and nothing you send leaves our office.
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