Small Business Valuation by Asset Valuations Group offers meticulous assessments tailored to your business needs. Trust our expertise for accurate valuations, guiding informed decisions and enhancing your business investments.
Small Business Valuation is an intricate and challenging process. However, there are many techniques that qualified valuers use in order to determine the value they would be willing to place on a small business. In coming to these values there are steps to be followed.
When an individual requires a small business valuation, they contact a qualified valuer to ascertain their fees. Moreover, before the valuer begins work, they conduct an interview with the client to gain a better understanding of their business. Likewise, they send through a letter of engagement for their services.
The letter of engagement is important as it outlines the scope of work, the qualifications of the valuer and fee involved. Furthermore, the letter of engagement should also illustrate what valuation methodology will be used to determine the small business valuation. Once the letter of engagement is signed by both the client and the valuer, there is documentation required to begin the small business valuation process.
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During the small business valuation process, you need to have the right information in order for the qualified valuer to determine the valuation of your business. In the event of the business not having financial information, we recommend you employ either a bookkeeper or an accountant to prepare these. Asset Valuations Group require the following documents:
We like to have at least five years’ worth of financial statements attributable to your business. If you do not have five years, we will accept less, however this can affect the value of your business.
With in the financial information, we require your current balance sheet. Most importantly, the balance sheet displays the total equity standing of the small business. Furthermore, it illustrates the business physical assets. We need this information to verify the assets along with a listing of the business asset register.
During our investigations, we require legal documents such as the leases, contracts in place, insurances and business registration papers.
All of this constitutes to what type of goodwill is relative to the small business valuation. We believe in three types of goodwill: personal, location and business goodwill.
We use resources such as RP Data and Ibisworld reports to help identify the small business industry. This information also assists us with sales evidence, market evidence, and other operations of the business.
We require staff information to work out how many levels of management there are in the small business. We also look at staff history, KPI’s and pay rates. This helps us normalise any inconsistencies on the profit and loss statements.
Moreover, we also take a look at your clients, what contracts are in place, how long they have been on board for and where they are situated. This all constitutes to the capitalisation rate and we need to apply it.
There are two common types of methodologies used when valuing a small business. They are The Capitalisation of Future Maintainable Earnings and The Asset Method.
The Capitalisation of Future Maintainable Earnings uses historical data to predict future maintainable earnings. This is derived from the financial statements, add backs and adjustments to normalise the net profit. Furthermore, once all is normalised, we decided on the measure of earnings, which is either PEBIT, PEBITDA, EBITDA, EBIT. For small businesses that are not sole traders, we rely mostly on EBITDA. Once we determine EBITDA (by adding back interest, depreciation and amortisation) we use market evidence as well as our business risk assessments to determine the business multiple. To find out more how this is used, click here.
In the event that the Asset Method (used to base the business value on the business assets) outweigh the value of the Capitalisation of Future Maintainable Earnings, we therefore would then elect the Asset Method as the primary method of valuation. This information is short and brief, but straight to the point.
Our first and foremost mission are our clients. We work with them not just to create valuation reports, but innovative solutions that will last. We are a multi-faced valuation firm located all over Australia, and head quartered in the heart of Brisbane City. We provide clients with a diverse range of services, from valuation advice to industry insight. We have experts in every field who can help our clients reach their goals and create value.
Our valuers are all registered through the Australian Valuers Institute. We believe that no small business valuation is the same, and as this is such we use a Bespoke approach to all reports. Contact us today at admin@assetvaluations.com.au or call us on 1300768862.
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