What is a valuation and when might I need one?

A business or share valuation is a formal document that provides an independent assessment of what a business is worth.

A valuation provides the same result as a business appraisal, but a valuation provides all the details. It is a much longer and more complex document that is usually needed in case of dispute or potential dispute.

You may need a business or share valuation to help with:

  • Providing independent advice to a buyer or seller involved in a private sale
  • Succession planning
  • Forward planning
  • Partnership buyout
  • Transferring private company shares, trust or partnership units
  • Dispute resolution
  • Family Court matters, including divorce settlements
  • Security valuation (for bank lending)
  • A retrospective valuation (identifies what the business was worth at a point in the past)
  • Compulsory acquisition value

Business plans: Developing a business plan that's often required by your financial institution or landlord.

Do I need an appraisal or a valuation?

Most people who are selling or buying a business need a business appraisal, not a valuation.

A business appraisal is a much simpler assessment and  a shorter report than a valuation. An appraisal is usually all you need if you want to know what price to sell a business for or what price to pay. The document is just a few pages long, provides a narrow market valuation range and takes three or four business days to complete.

Read more and request a no-obligation business appraisal here.

How is Raine & Horne Business Sales qualified to provide valuations?

Simon Winter prepares or reviews all valuations at Raine & Horne Business Sales.

Simon is a Certified Practicing Valuer (CPV) and a Certified Practicing Accountant (CPA). He has a background in business that gives him the experience and empathy to value and sell businesses. Your valuation will be prepared to meet the standards of the Australian Property Institute.

If required, your valuation can be prepared in a format that is admissible to Australian Courts or it can be presented to satisfy the security requirements of financiers.

Read more about Simon's qualifications and experience.

Helpful information

Raine & Horne Business Sales has a helpful article and video with more information about valuations.

Valuation: A dangerous formula, INTHEBLACK, July 2006
When he studied the sale of 267 businesses, Simon Winter found that most formulas for valuing business are inaccurate and unreliable.


The difference between a business appraisal and valuation

The terms 'appraisal' and 'valuation' mean something quite different.

This video explains the difference between the two and the reasons why you might need either one.

 

What are the different types of valuations?

Business valuation

A business valuation is usually based on the income that the business produces and considers the value that would transfer to a buyer and allow them to continue operating the business. It includes saleable stock, the written-down value of freehold plant and equipment, and goodwill.

A business valuation assesses the return and risk of a business: a high return and a low risk business provide the greatest value.

Return is shown as a single figure and is also known as the future maintainable income: an income figure that can be reasonably expected to be maintained into the future on an ongoing basis. Everything that affects income is considered when calculating this figure.

Risk is the link between return and the business value and is expressed as a capitalisation rate. Risk includes all factors that influence the business value but that don’t influence the business income. Risk is generally stable and predictable and is calculated by looking at the capitalisation rate achieved by other similar business sales.

Depending on why you need a business valuation, they can either be prepared as a short or long valuation.

A short business valuation is the most commonly requested type of business valuation. It is usually over 20 pages long, and includes a detailed income analysis, assessment of risk characteristics and a direct comparison to the sale of other similar business.

A short business valuation does not include a review of the business performance and is not usually in a format that can be used in dispute settlements or in court.

This valuation normally takes up to two weeks to prepare.

A long business valuation is usually prepared for a special purpose or when there is a dispute. It is usually over 35 pages long, has all the information in a short valuation, and also includes a business performance analysis.

A long business valuation is in the format needed for use in court or for dispute settlements.

This valuation normally takes two to three weeks to prepare.

Have a chat with Simon to find out which type of valuation is best suited to your needs.

Share, trust or partnership unit valuation

A share, trust or partnership unit valuation (which is often simply called a share valuation) goes one step further than a business valuation and includes all the business assets and liabilities to calculate the net asset position per share or unit.

Just like a business valuation, a share valuation can be prepared in a short or long format.

A short share valuation is ideal when you are dealing with an existing partner, the matter is not in dispute and you simply need independent assistance that you can rely on.

A long share valuation is more detailed and is the format you would need to help settle a dispute or to use in court.