There are many situations where a business owner may need to understand the value of their business.
When referring to business value, it is important to define the type of value being discussed. A business may have a book value, fair market value, or liquidation value.
Book and liquidation values are straightforward to calculate and are typically handled by an accountant. Fair market value, however, is more complex and requires a skilled professional with up-to-date market insight.
We review 3 to 5 years of financial statements including trading statements, income and expenditure reports, and balance sheets. These help identify profitability trends and industry comparisons and are used to determine a weighted income average.
This includes how the business is run, staffing structure, turnover, marketing, inventory management, length of operation, and location desirability. All of these contribute to the perceived risk and overall value.
We assess what impact the owner has on daily operations and whether the business can run effectively without them. If under management, the details of the management contract are reviewed to evaluate continuity.
How broad and stable are the supplier and customer networks? Businesses with few major suppliers or clients may carry greater risk. A diverse and resilient network adds value and reduces uncertainty.
Valuations must be supported by evidence. The depth of research, financial analysis, and required defensibility—especially for legal matters—can make the process time-consuming and more costly.
When valuations are required for court or legal proceedings, they must be defensible and well-prepared by a qualified professional.
Contact a member of Business Brokers Network Australia and speak with an AIBB Business Valuer today.