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The price of a business valuation in Australia can vary significantly depending on factors such as the purpose of the valuation and the firm providing the service. Let’s examine the various types of valuations available and their associated costs, shall we? When it comes to business valuations, there are different options to consider. Starting with the most affordable, we have valuation calculations, or ‘appraisals’. These calculations serve basic purposes and are offered at a competitive price. But beware, anyone can provide this as a service, and they do not need to comply with the Australian Professional and Ethical Standard APES 225 – Valuation Services. You can secure an appraisal from a few hundred dollars to over $1,000 for a small business, depending upon who you engage. But a word to the wise – make sure they are qualified and reliable. BVO provides this service for $900 plus GST, and they are performed using many of the same metrics and analysis as our more advanced reports. Moving up the scale, we have full and limited scope valuations. These valuations are well-suited for complex scenarios like restructuring, sales and purchases, and tax requirements. The pricing for these valuations may vary based on the specific needs and intricacies involved. These services usually start at more than $3,000 plus GST to well over $10,000 plus GST.  For those seeking a more comprehensive assessment, Business Valuations Online (BVO) provides limited scope valuations at a fixed fee of $3,000 plus GST. As part of our service, we also offer a business valuation forecast dashboard. This unique tool enables business owners to easily recalculate their valuation by making hypothetical changes to key business factors, such as income forecasts, operational costs, and risk analysis. In certain cases, such as litigation for commercial or family law matters, court-based valuations become necessary. These valuations must adhere to the expert code of conduct and carry substantial weight in legal proceedings. The are often referred to as an “Independent Expert Valuation Report”. However, due to their intricate nature, court-based valuations typically start at a minimum of $5,000 plus GST and can surpass $100,000, depending on the complexity of the situation. BVO provide independent expert valuation reports, and will provide an upfront quotation before commencing your work. Our experts have provided expert valuation evidence in every applicable court jurisdiction in Australia, so you are in good hands. At BVO, we understand the importance of transparent and competitive pricing. Our aim is to deliver accurate and reliable business valuation reports without any hidden costs. With our expertise and affordable options, we cater to a range of valuation requirements. Whether you require a basic valuation calculation or a comprehensive assessment, our team is ready to assist you. Discover the true value of your business with our affordable business valuation services. Value My Business Now

Clean Bookkeeping is an essential aspect of running a business. It involves maintaining accurate financial records of all transactions, including income, expenses, assets, liabilities, and equity. But it also means keeping the finances of the business and the owners separate – or at ‘an arm’s length’. Whether it is needed either for restructures, a transaction, or even for a dispute, the extent to which the business is kept at an arm’s-length to its owners will have a direct and substantial effect on the business valuation. When two parties conduct business at an arm’s length, they are expected to act independently and make decisions that are in their own best interest, rather than being influenced by personal relationships or conflicts of interest. In the case of an owner and their business this can be tricky, but keeping separate finances is a step in the right direction to ensuring that the interests of the business and the interests of the owner are not confused. That means the finances should be free of non-business expenses so that when you look at the financial reports for the business, you are seeing the performance of the business alone, rather than a murky mixture of personal and business expenses all rolled into one. If a business was to pay for a spouse’s car, personal travel, renovations to the family home, and the like, a reduction in the saleable value of the business is inevitable. I have often observed businesses, where the owners have dipped into the till, and find themselves strapped for cash in leaner times, as they have pulled out available cash in times of plenty. The result is that the business struggles. Of the thousands of businesses we have valued over the years, we would estimate that less than 5% (or 1 in 20) of them have no personal expenditure running through them. This means we can easily look at the trading history and current financial position of the business without relying upon a bunch of adjustments that the client is telling us aren’t business related. These businesses are easy to value and desirable to a purchaser because the level of guesswork and reliance on someone’s approximation is vastly reduced, meaning that it is a less risky purchase. Some businesses (this time around 10%) treat their businesses like a piggybank; simply pulling money out left and right, paying for personal expenses with impunity, and accounting for it poorly. As an example, we had a recent client provide me with pages and pages of approximated ‘personal expenses’ that they wanted us to add back to the profit to provide its ‘real’ profitability. Nearly all of these adjustments were based upon their opinion, and if a buyer scrutinised them the seller would be hard-pressed to provide evidence to support their position. This would likely result in the purchaser not going through with the transaction or to vastly reduce their offer due to the perceived riskiness of the performance of the business. And would you blame them? We certainly wouldn’t. Here’s a test that you should apply to pretty much all the tips we give you:When faced with two businesses that you could buy that are pretty much the same – they have similar turnover, profit, and locations: one is doing X and the other is doing Y, which one would you pay more for. In the end, the mixture of personal and business expenses running through a business is a bit like muddying the water. As good as any business valuer is, they can only filter the water so much. It will never be completely clear and will be tainted to any prospective purchaser simply because of how muddy it was. They just don’t trust that it’s all clear now… Sometimes business valuations aren’t just about the easily quantified risks. It can simply be the perception of the risk in a potential purchaser that reduces their appetite to purchase, and thus they are less willing to spend money on the purchase, thus seeking a discount before the perceived risk becomes palatable to them. The takeaway from this: Don’t muddy the waters in the first place. Value My Business Now

Businesses are valued in a number of different ways; discounted cash flows, net tangible assets, and cost of creation, to name but a few. The methodology most often applied however, is the capitalisation of future maintainable earnings (CFME)… and with it comes the often-misunderstood capitalisation rate, usually applied as a multiple. Much like the Continuum Transfunctioner (as immortalised in the, some would say ‘ground-breaking’ movie “Dude, Where’s My Car?“), when it comes to the multiple applied in CFME valuations, “…its power is only exceeded by its mystery”. Many business owners regularly assume that the multiple should always and forevermore be 3, but rarely is this the case… the multiple is simply a misunderstood beast. When valuing a business, it is generally accepted (by us valuation boffins) that the discounted cash flow (DCF) method is the most accurate and reliable. In general terms, the DCF method calculates what all of the future income streams of a business are worth in ‘today’s money’ if received at the date of the valuation as a lump sum. This is done (in its most simplified form) by determining firstly, how long we can reliably measure those income streams into the future (usually in years), and secondly, determining what sort of discount rate to apply based upon the time-value of money and the relative risk of the business. The reason that this method is not the most regularly utilised by valuation professionals is that most SMEs don’t have cash-flow forecasts for the next 3 months, let alone the next 5 years… so what do we do instead? Enter the CFME valuation methodology. As long as the business/entity has been profitable for the last few years (and thus giving us some comfort that the business will remain profitable into the future), we can apply this methodology as a proxy for the DCF valuation. Instead of discounting each parcel of cash that the business is likely to receive into the future back to today’s value, the CFME methodology seeks to determine an approximation of the profits that the business/entity is likely to make into the future (usually by reference to profitability in the form of net profit, before tax and excluding interest in prior years), and then applying the multiple. The multiple represents a risk assessment of and for the business; it considers the industry, the turnover level, the relative financial performance of the business, insurance and credit risk, specific commercial risks, entity-specific risks, reliance upon key employees, owners or key customers, geographic risks, competitor risks, technology considerations… to name but a few. It is not simply 3*.For instance, in micro businesses (where turnover is less than $500,000), it is not unusual for the multiple to be less than 1, as the business depends entirely on a single individual. Essentially, the business sale would be a person purchasing a job.A business turning over less than $1 million is often traded for a multiple of between 1.5 and 2.5. It would need to be a business possessing some very special attributes in order to attract a multiple of 3 or more. Equally, a business in the turnover range of $1 million to $5 million would have to be quite special or be purchased for synergistic benefits to attract a multiple of 3 or more.Once a business turns over more than $5 million, making a significant (and relatively consistent) profit, with few operational risks, it is more likely (but by no means guaranteed) that the business valuation CFME multiple will approach or eclipse the mystical number 3.Like any specialist service, business valuation requires the systematic application of academic rigour within the context of sensible, commercial considerations. A one-size-fits-all approach is not only inappropriate; it can be misleading and potentially damaging. * Occasionally, through pure happenstance, the multiple might just happen to be 3… by accident Value My Business Now

Businesses that are valued on the basis of a multiple of their profit (or Earnings Before Interest and Tax) are being valued using the Capitalisation of Future Maintainable Earnings valuation methodology. This method places a value on a business by estimating the likely Future Maintainable Earnings (FME), capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data. The FME used in the valuation can be based on net profit after tax or alternatives to this such as EBIT or EBITDA. EBIT multiples can range from 0.8 times FME to over 5 times, depending upon the industry, performance, and relative risk of the subject business. However, for businesses that turn over less than $5 million per annum, around 80% of them that sell, do so for less than 3 times the EBIT (or profit), whilst businesses that turn over less than $1 million are lucky to sell for 2 times EBIT. Once businesses start turning over more than $5 million, they are more likely to reach multiples in excess of 3 times. To sell for more than that, the business needs to be doing something pretty remarkable to set itself apart from its competitors. Of course, some industries see higher and lower profit multiples and there will always be businesses that were sold at a bargain-basement price, whilst others were sold at a premium. When determining a multiple, it is important to remember what it represents: RISK. The higher the multiple the less risk that the business will continue to earn the profit level being multiplied. The lower the multiple, the riskier it is that the business will not maintain that level of profit. Value My Business Now

It is widely agreed by business valuation experts that the Discounted Cash Flow (DCF) methodology is the most precise way of valuing a business. It is based on the generally accepted theory that the value of a business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks. A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate. DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start-up phase, or experience irregular cash flows. However, applying a DCF valuation relies entirely upon having accurate cash flow forecasts that set out not only how much cash will be received in the future, but when it will be received, and how much it will cost to produce the cash flows. It is rare for a small to medium business to possess this level of cash flow forecasting, and thus the capitalisation of future maintainable earnings methodology is often utilised instead. Value My Business Now

Businesses can be valued in a number of ways, including Net Tangible Assets, Capitalised Future Maintainable Earnings, Discounted Cash Flow, Net Realisable Value, and various others. Some industries (such as real estate and accounting practices) have developed a short-hand valuation method over time, often referred to as an Industry Rule of Thumb. The most commonly applied valuation methods for small businesses are the Net Tangible Assets and Capitalised Future Maintainable Earnings. Capitalised Future Maintainable Earnings Business Valuation Method This method places a value on shares or a business by estimating the likely Future Maintainable Earnings (FME), capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data. The FME approach is the most commonly applied valuation technique and is particularly applicable to businesses with relatively steady growth histories and forecast, regular capital expenditure requirements and non-finite lives. The FME used in the valuation can be based on net profit after tax or alternatives to this such as EBIT or EBITDA. EBIT multiples can range from 0.8 times FME to over 5 times, depending upon the industry, performance, and relative risk of the subject business. Net Tangible Assets Business Valuation Method The Net Tangible Assets method is usually appropriate where there is no goodwill in a business or where the majority of assets consist of cash or passive investments. All assets and liabilities of the entity are valued at market value and this combined market value (less any debt) forms the basis for the entity’s valuation. Often the Capitalised Future Maintainable Earnings or Discounted Cash Flow methodologies are used in valuing any goodwill component of a business for inclusion in a Net Tangible Assets valuation. Value My Business Now