Business Valuation Before a Sale
An independent valuation gives a trade-business owner an evidence-based view of what the business is worth before it goes to market.
Why an independent valuation
Most owners selling a trade business get one chance to set the price. An asking price taken from a rule of thumb, a friend’s sale or a broker’s opinion can be too high, which stalls the sale, or too low, which gives away value that cannot be recovered. An independent valuation sets out the earnings a buyer could expect, the risks that apply to them and the reasoning, so the asking price rests on evidence.
A valuation also shows the owner what a buyer’s due diligence is likely to find. Owner dependency, customer concentration, licences held in the owner’s name, equipment near the end of its life and loose bookkeeping all reduce what a buyer will pay. Seeing them early leaves time to fix what can be fixed, or to price the business with the weaknesses in view.
A written valuation from someone with no stake in the sale also gives the owner’s accountant, a prospective buyer or a lender something to test their own views against. It does not set the price, because only a willing buyer does that, but it gives everyone a reasoned starting point.
When owners and advisers ask for one
- A plumbing, electrical or HVAC owner thinking about selling in the next few years who wants to know what the business is worth today
- A landscaping or maintenance business owner who has received an unsolicited offer and wants to test it before replying
- An owner preparing for a sale who wants to find out which weaknesses a buyer will price in
- A broker has suggested an asking price and the owner wants an independent second view
- The sale of one division, such as a maintenance contract book, while the owner keeps the construction arm
- A buyer, or a buyer’s accountant, who wants an independent view of the price being asked
- A sale to a manager or long-serving employee where both sides want a price that can be explained
What the valuation needs to address
Settled in the engagement letter before work starts, so the report answers the question it is being used for.
Valuation date and information relied on
A valuation is made as at a stated date, usually the end of the latest period for which reliable financial information exists. We state the date and the information used so the figure can be read in context. If a sale will not complete for months, trading after the valuation date matters too.
Standard of value
For a sale we usually value on a market value basis: the price a willing buyer and a willing seller would agree in an open market, neither under pressure. That differs from what the business is worth to the current owner, or to one particular buyer who expects to cut costs by combining it with their own.
What is being sold
A sale of business assets and goodwill, a sale of shares in the company and a sale of a trust’s business are different transactions. We confirm which entity and which assets are in the sale, and what stays behind, such as vehicles on finance, cash, debtors or a related-party premises.
Maintainable earnings
The profit in the tax return is rarely the profit a buyer will receive. We adjust for a market wage for the owner’s work, private expenses, related-party rent and one-off items to reach the earnings a new owner could reasonably expect to keep.
Transferability
Buyers pay for earnings they can keep. We consider whether licences, key staff, customer contracts and referral sources would stay with the business after a sale, and reflect that in the risk we apply to the earnings.
Who will rely on the report
A valuation prepared for the owner’s own planning is different from one a buyer’s lender may read. We agree the intended users and the purpose in writing, and the report is for those uses only.
How it runs
Intake starts online at /start. We confirm in writing the entity being valued, the valuation date, the purpose and who will rely on the report. The owner then uploads financial statements, contracts and the industry-specific items we list through the secure client portal.
A draft report is provided before the report is finalised, so the owner and their accountant can correct facts and ask questions. Typical turnaround is 3 to 7 business days once all required information has been received. That is a typical range, not a promise, and complex matters can take longer.
The Independent Business Valuation is a fixed fee of $1,995 + GST. Matters with multiple entities, divisions, significant plant, unusual ownership or heavy customer concentration are complex valuations, quoted in writing from $2,995 + GST before work starts. See pricing.
- Tell us about the business. Complete a short valuation intake.
- Upload your information. Financial statements and supporting information are securely uploaded through the client portal.
- We analyse the business. We review earnings, operating structure, industry characteristics, risks, assets and transferable goodwill.
- Valuation prepared. Appropriate valuation methodologies are applied and the evidence is documented.
- Draft and final report. You receive a draft before the report is finalised.
Important
A valuation is an opinion of value for a stated date and purpose. It is not a price, an offer or a recommendation to sell, and we do not give tax or legal advice: your accountant and lawyer advise on the structure, tax and terms of a sale.
Information on this website is general in nature and does not constitute legal, taxation or financial advice. The appropriate valuation approach depends on the circumstances and purpose of each engagement.
Common questions
When should I get a valuation before selling?
Ideally several months before you plan to go to market, because a valuation is most useful while there is still time to act on what it finds. It can also be done once a buyer is already at the table, but there is less room to improve the position by then.
Will a valuation tell me what price a buyer will pay?
No. A valuation estimates market value, the price a willing buyer and a willing seller would agree. The price you actually receive depends on who is buying, what they plan to do with the business, the terms and the negotiation. What a valuation gives you is a reasoned figure and the reasoning behind it.
Is a valuation the same as a broker’s appraisal?
No. A broker’s appraisal is usually an opinion of a likely selling price from someone who may be paid only if the sale completes. An independent valuation is prepared by someone with no interest in the outcome and sets out its method and evidence. Our article on business valuation vs business appraisal explains the difference.
What do you need from me to start?
Financial statements and tax returns, typically for the last three years, a current year to date profit and loss statement and balance sheet, and information on customers, staff, equipment and contracts. Our guide to the documents needed for a business valuation lists them.
Related
Start with a short intake. We confirm the fee and scope in writing.
An Independent Business Valuation is $1,995 + GST, with a draft before the report is finalised. Typical turnaround is 3 to 7 business days once all required information has been received.