How to Value a Business
When determining a business’s value there are three methodologies that our business valuers will utilise in order to determine the fair market value of your business. Our team of Perth business valuers will investigate financial statements, expense variables, and wages while looking into tax benchmarks and the local economic market to analyse business value. As such, these methodologies are standardised to ensure complete accuracy and transparency and are used in accordance with specific business structures. These include:
The Capitalisation of Future Maintainable Earnings: This methodology will use the business’s historical financial statements and use a formula to calculate future earnings. This involves taking a further look into the business’s performance within the local economic market by using industry multiples and ATO benchmarks to measure business earnings. From here, our business valuers will use a normalisation method to discount any one-off expenses to create a fair analysis on business performance.
As a result, the business valuer will be able to analyse these findings by applying a weighting method on overall earnings to interpret future revenue. This will then be used to calculate the business’s fair market value. This methodology is one of the most common approaches when valuing a business and is used for a number of business structures such as small to medium sized enterprises and start-ups.
Net Assets Approach: This methodology is solely focussed on seeking the value of the business’s assets. Our business valuers will investigate both intangible and tangible assets and determine value by weighing these against any financial obligations the business holds. This approach is usually reserved for when the business in the process of closing down and/or is not likely to produce any future revenue and the business has little to no goodwill remaining.
The Discounted Cashflow Methodology: This methodology uses any forecasted cash flow statements as an indication of market performance to calculate business value. As such, this methodology is reserved for larger entities with the capacity to plan and project cash flow in order to track investment opportunities.
As a result, our business valuers will utilise these cash flow forecasts in a similar way as the Capitalisation of Future Maintainable Earnings Method using ATO standards. In turn, our business valuers will also investigate any risks associated to these forecasts and use these to interpret the overall business value.
Our clients choose us because our team have the industry expertise to help them with a certified business valuation for their next business-related decision. If you require a business valuation or would like more information in how we can help you, contact our team on (08) 9468 9850. Alternatively, you can complete an online enquiry form and we will get back to you as soon as possible.