Business Valuations for Restructures
An independent valuation puts a documented value on a trade business, or part of it, when it moves between entities, owners or structures.
Why an independent valuation
Trade businesses often outgrow their first structure. A sole trader becomes a company, a company is placed under a holding company or a family trust, or a business that has run in one entity is split into trading, property and equipment-owning entities. Each move needs a price for what is moving, and that price matters to the accounts, to the people on both sides of the transfer and to their advisers.
When the parties are related, nobody is negotiating at arm’s length, so there is no market test of the price. An independent valuation supplies one: what a willing buyer and a willing seller, dealing at arm’s length, would agree. That protects the owners, any other shareholders or beneficiaries, and the accountant who has to explain the figure.
It also separates two questions that are often mixed up: what the business is worth, and how it should be structured. We answer the first. The owner’s accountant, tax adviser and lawyer decide the second.
When owners and advisers ask for one
- A sole trader or partnership incorporating a plumbing, electrical or landscaping business into a company
- Moving a trading business into a new company or trust held by a different group of family members
- Splitting a business into an operating company and a separate entity that owns the workshop, yard or equipment
- Combining related trading entities, such as a maintenance company and a construction company, into one
- Bringing in a new owner or key employee who will buy into the business through a new structure
- Placing a holding company above an existing trading company
- Separating a division, such as a solar installation arm, from the main business
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.
Which entity and which assets
A restructure often moves some things and leaves others: goodwill, plant, vehicles, contracts, licences, debts and loans between related parties. We confirm exactly what is transferring and value that, rather than the business in general terms.
Valuation date
The date should match the date of the transaction as closely as the information allows, and we state it in the report. If the transfer falls after the date of the latest financial statements, we say what we have assumed about trading in between.
Standard of value
Transfers between related parties are usually tested against market value, the price that would be agreed at arm’s length. We confirm the standard with the adviser at the outset and state it in the report.
Interests and discounts
If the restructure issues or transfers shares or units, a minority interest can be worth less than a proportionate share of the whole. We address control, restrictions in the constitution, trust deed or shareholders agreement, and say whether we have applied any discount and why.
Related-party arrangements
Rent, loans, wages and management fees between related entities are rarely at market rates. We adjust them to reach the earnings an arm’s length buyer would see, and we flag arrangements that will change once the restructure is done.
Who relies on the report
Usually the owners and their accountant, and sometimes a lender, an auditor or an incoming shareholder. We agree the intended users in writing, and the report is for those uses only.
How it runs
Restructures are usually led by the accountant or lawyer, and we work from their instructions. They tell us the proposed structure, the entities and assets involved and the date of the transaction, and we confirm the scope in writing before work starts. Intake starts online at /start.
A draft report is provided before the report is finalised, so the advisers can check that it describes the right assets and entities. Typical turnaround is 3 to 7 business days once all required information has been received, though that is typical rather than promised.
The Independent Business Valuation is a fixed fee of $1,995 + GST. A restructure involving multiple entities, divisions or significant plant is a complex valuation, quoted in writing from $2,995 + GST before work starts. Accountants can refer matters under the accountant partner arrangement at $1,495 + GST.
- 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
We value the business, interest or assets your advisers identify. We do not give tax or legal advice, and we do not advise on whether a restructure is appropriate, how it should be structured or what its tax consequences will be: those are questions for your accountant, tax adviser and lawyer.
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
Do I need a valuation when I move my business into a company or trust?
Not always. It depends on the structure, the parties and what your accountant or lawyer decides is needed. Where assets move between related parties, an independent valuation is a common way to document a market value. Ask your adviser whether one is needed in your case.
Can you value only part of a business, such as one division?
Yes. We can value a division, a contract book or a defined set of assets, but the report has to state exactly what is included, and shared staff and overheads have to be allocated sensibly. Matters involving divisions are quoted as complex valuations from $2,995 + GST.
What if the restructure date has already passed?
We can value as at an earlier date where the engagement permits it and the information for that date is available. A historical date can make a matter complex, in which case it is quoted from $2,995 + GST, and an additional historical valuation date is from $495 + GST. Tell us the date and the reason when you start.
Is a valuation for a restructure the same as one for a sale?
The method is the same but the question can differ. A sale asks what a buyer would pay for the business as it will run afterwards, while a restructure often values specific assets or an interest at a transfer date. We settle the purpose first so the report answers the right question.
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.