Get A Professional Analysis On Your Business Valuation

Simply put, a business valuation is the formal process of determining what your business is worth.

Business valuers are accredited individuals, generally university trained with formal accounting training and experience who help come up with a value on your business by analysing your P&L’s, business model and business systems to determine a value.

Business valuations can be determined using a variety of valuation methodologies.

Your business valuer will use their expert knowledge to choose the correct valuation methodology for your business.

Valuator has a team of experienced valuation experts  who specialise in the analysis of a businesses value. If you want to sell your business or are using a valuation for a dispute or to find out what your business is worth, then Valuator can help you!

How we value your business

There are a variety of variables that we use to determine what your business is worth. Here is a list of some of the factors that we take into account in our valuation:

• Current profit
• Current assets
• Owners involvement
• Future growth potential
• Industry
• Management
• The economy
• Risk to a buyer

 

Business Valuer Process

1.   Initial Review
2.   Letter of Engagement
3.   First Installment Paid
4.   Business Investigation
5.   Data Collected
6.   Data Analysed
7.   Industry Data Analysed
8.   Choose appropriate Valuation Methodology
9.   Determine The Value
10.   Produce Draft Report
11.   Review Draft
12.   Send Soft Copy For Review To Client
13.   Final Payment Before Release Of Report
14.   Send Final Version To Client

Business Valuation Methods

There are four commonly used valuation methodologies used for a small business valuation:

1.   Future maintainable earnings
2.   Earnings multiple
3.   Comparable sales
4.   Asset Valuation

Future Maintainable Earnings

When you buy a business you are also buying the potential profits that it may generate in the future. Future maintainable earnings is the most common small business valuation methodology and looks at the adjusted earnings of a business and the rate of return buyers can expect from the business by capitalising it’s future earnings. Return on investment is the level of risk a purchaser is willing to take on the business, based on a combination of macro and micro factors. Generally when people buy businesses they seek a 20% – 100% return on investment.

How it works

• The future earnings of the business can be calculated by taking the average profit over the last three years adjusting for one off expenses any irregular payments.
• Now find the rate of return that you are willing to risk (i.e. 40%)
• Then divide net provide by the rate of return and then multiply by 100.

E.g. a business makes $100,000 per year. You want a rate of return of 40% therefore you divide 100,000/40 = 2,500. Then multiply by 100 equals $250,000.

Earnings Multiple

You may apply an earnings multiple to your business. For example take your EBIT (Earnings before interest and tax) and multiply it by 2.

How It Works So for our business that is making $100,000 per year.

• We multiple that by our earnings multiple (2) and we get a valuation of $200,000.
• The multiple will be dependent on various factors including the net profit, industry, growth potential and other macro factors.
• Multiples can range from 0.5 to 6 depending on the business.

Comparable Sales

You may search for similar sales of your business to find comparable sales data.

How It Works

• By looking at what other businesses similar to what yours sold for you can get a gauge of what your business is worth.

Asset Valuation

You may make your valuation based on the assets of the business. An asset valuation takes all the assets of the company and then subtracts liabilities. This method is normally used when the company is going to be shut down.

How It Works

• Add up all the assets of the company including cash, stock, accounts receivable, buildings, land and plant and equipment.
• Add all liabilities including creditors, loans and all payments due.
• Subtract the total value of the liabilities from the total value of the assets to get the total asset value.

NOTE: good will is not included in an asset valuation. The assumption is the business will not be trading in the future.

Other Methods

1. Discounted Cash Flow – this method is favoured by large accounting firms and is not normally appropriate for small and medium businesses. It attempts to put a value on future cash flows of the business.
2. Return On Investment (ROI) – the ROI valuation method takes the current net profit and divides it by the expect rate of return.
3. Price To Earnings Ratio (P/E) – this is the valuation method used to value public companies. The difference is the after tax profit is used as a multiple in earnings. What business owners fail to recognise is that a P/E of say 10 is equal to a EBIT of 7 because a small business valuation takes then net profit before tax and the P/E takes net profit after tax into consideration.