Find out about our independent business valuation process below.
What is a Business Valuation?
Independent Business Valuation – Why do I need a Independent Business Valuer?
An Independent business valuation has no connection to a buyer, seller or advising party in the valuation process. In essence, they have no interest in whats being valued.
Asset Valuations Group has a wealth of experience completing independent small, medium and large independent business valuations. During this process, from the letter of engagement, all the way to producing the final valuation, we act independently. We will discuss the following:
- Letter of engagement;
- Business Valuation Required Documents;
- Valuation Methodology;
- Report delivery.
Our wealth of experience has helped us simply the valuation process, to make it hassle free for our clients. Each report is bespoke and indicative to each industry. We follow the International Valuation Standards Council guidelines while producing an accurate, independent business valuation report.
Letter of Engagement – Independent Business Valuation
The most important part of the business valuation process is the letter of engagement. This allows the client to engage Asset Valuations Group as a business to prepare an independent business valuation report. It further allows us to identify the following:
- The intended users of the independent business valuation report;
- What are the typical methodologies adopted for the type of business being valued;
- What we are valuing (As an example, Enterprise Value);
- What documentation we will require to perform an accurate independent business valuation;
- The Business Valuation service fee; and
- The timeline to complete the business valuation report.
It is in our belief, the letter of engagement is integral to the business valuation process, as it forms the mandate around the entire independent business valuation.
Business Valuation Required Documents
Before Asset Valuations Group commences the Independent Business Valuation Report, we require certain documentation in order to provide our opinion. As the general rule of the thumb, we require the following:
- Three to Five years profit and loss statements (Five is preferred)
- The current balance sheet;
- The list of company assets, as well as any encumbrances on those assets;
- The list of employees (this helps normalise the financial statements)
- The tenancy agreement (if there is one)
- Any listed contracts in place;
- Their company accountant details (to help simplify the process for required documentation)
Depending on what information is received, we form an unbiased opinion on the measure of earnings (EBIT, EBITDA, PEBIT, PEBITDA). Once we establish the measure of earnings, we then apply a business multiple to calculate the business value.
Business Valuation Methodology
Once we have received the required documentation, we form an opinion around around what approaches and methodologies to use to complete the independent business valuation report.
In consideration of the above factors, we follow international valuation standards which set guidelines for Valuers around world. Asset Valuations Group follow three important approaches to help determine the business value:
- The Market Approach.
- The Income Approach.
- The Cost Approach.
The market approach is a popular method for valuing businesses, especially those that have been recently sold. The capitalisation of future maintainable earnings takes into account EBIT, EBITDA, PEBIT and PEBITDA. The market approach is the most common method used when valuing independent small and medium sized businesses.
The income approach considers both the capitalisation of future maintainable earnings method and discounted cash flow method. Since the discounted cash flow method is generally used for larger companies with more stable finances, it’s often considered over-complex when valuing a small business. Unless there is no other option, we do not recommend this approach to be used at the primary valuation method.
The Cost Approach, in the business valuation world, considers The Asset Method. The asset method ascertains the value of the business assets through either the balance sheet (list of assets), or appointing a third party independent asset valuer. Asset valuations group has an independent in-house third party valuer who values all assets. We can use this method to calculate the value of the business goodwill, and where the value of the business assets exceed the value of the future maintainable earnings.
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Independent Business Valuation Report Delivery
Once we have established the measure of earnings, we then apply a business multiple to calculate the business value. To further expedite this process, we also establish business goodwill. In layman’s terms, the business goodwill is calculated by subtracting the total business value, from the total assets value. As discussed above, when we apply the capitalisation of future maintainable earnings, we then can apply the business goodwill this way.
Our independent business valuation reports contain the following:
- Industry report data;
- Business Valuation Methodologies (2x);
- Forecasted and Current Financial data;
- Calculated conclusions; and
- The determination of goodwill.
Our report delivery takes approximately two weeks to the first draft and one day for delivery. For urgent matters, our team at Asset Valuations Group will always accomodate. Our valuation firm always puts our client first, with being risk-adverse in mind. Contact us today to find out how our independent business valuation reports and valuers can help you and your business!
Please note that property valuations are valued differently. Please click here to find out more.
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