Accounting - Business valuation experts

Introduction

Experts in this field are professionals in the valuation of business assets. The valuation of a business will be required when businesses are bought or sold (including management buyouts), broken-up, financed or re-financed, floated, put into receivership, or liquidated. Partnerships that add or lose partners will also need to be valued. Insurance quotes can also rely on the valuation of a business.

Valuing a business will require examination of current financial statements as well as any commercial property owned (including intangible intellectual property) and written down plant & equipment. Relying solely on the written down value listed on a depreciation schedule is usually not good practice due to asset pooling and accelerated depreciated rates
allowed by the Australian Taxation Office. Establishing value where original purchase costs no longer exist can be difficult, especially where unusual, custom, or specialised machinery has been imported or tailored, and a quantity surveyor will be required.

Assets such as cash at bank (and other investments), inventory stock, plant, equipment and receivables are added together. Conversely, liabilities like bank loans, hire purchase agreements, leases, and other payables are then deducted from the asset. What’s left is the net asset value. Unless the business is making a continual loss, this won’t be the value of business as it omits goodwill.

Goodwill is the difference between the true value of a business and the net asset value. It represents the features of a business that aren’t easily valued, such as location, reputation, customer loyalty, longevity, business history, and future business prospects in changing market. It’s not always transferred when you buy a business, since it can come from personal factors like the owner’s reputation or personal customer relationships.

Another method experts may use to calculate a businesses' value is to calculate the businesses' future profits (based on historical figures and earnings potential due to market changes or new investments). The future earnings are ‘capitalised’ i.e. given an expected value. The capitalisation value gives the expected rate of return on investment (ROI), shown as a percentage or ratio. A higher ROI is more favourable for the purchaser. Business valuers should also take into account similarly sized businesses in similar sectors in similar regions to also calibrate their valuations.

Experts in this field have a strong basis of knowledge in finance, commerce, economics, or business operations. They can be of great value to the legal process in providing analysis of a business's assets, particularly useful in the assessment of damages or liquidation disputes, amongst many other circumstances.

At the bottom of this profile are brief details of a number of the experts that Expert Experts represents. Call our office to discuss your requirements and to obtain a recommendation that suits your needs and budget.

Expertise in Action

Experts in this field work closely with financiers, liquidators, business agents, accountants, insurance underwriters, and government authorities. When there is a dispute over the valuation of a business, experts may be required to give an opinion.

They may be needed for insurance valuations, financial institution due diligence, tenders, mergers and acquisitions, litigation and insolvency, and financial reporting.

Sample Reports

For some fields of expertise we have some sample sections of de-identified reports. Please contact our office if you are interested in a sample.

Cost

The overall cost of expert opinion depends on the services required. Some of the key factors that affect the cost of advice include:

• The need for a view or inspection of a location
• The quantity of documentary material to be reviewed
• Whether there are reports of other experts to be reviewed and commented on in detail
• Whether there is a need for conferences with the expert either in person or by telephone/Skype

Relevant Articles General Valuation Issues

The Accounting Professionals and Ethical Standards Boards (APESB) in Australia defines valuation as the act or process of determining an estimate of value of a business, business ownership interest, security or intangible asset by applying Valuation Approaches, Valuation Methods and Valuation Procedures. A Valuation does not involve the verification of information in respect of the business, business ownership interest, security or intangible asset being valued.

Buyer beware: high valuations based on unrealistic growth hopes

In every boom, a dominant theme emerges that provides the scope for valuations to disengage with reality. This current boom is no different. And history has proven, time and time again, that only a few companies succeed in the way that investors appear to hope all their holdings will. Indeed, even globally, few companies achieve the sort of growth rates that are currently being implied by the prices of so many Australian companies.

Relevant Cases Hodgson v Amcor Ltd; Amcor Ltd & Ors v Barnes & Ors [2012]

This case was concerned with the correct procedures to be adopted when a business sale was a management buy-out (MBO) to ensure independence of valuation.

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