Having a business in Perth and Western Australia appraised or valued

Establishing a fair price for a business that’s to be sold needs a mix of both facts and judgement.

There many considerations that are taken into account when estimating a business’s worth, including sales, costs, profits, assets, liabilities and tax. All the businesses for sale through Business Mergers and Sales have all been subject to a professional valuation, giving you an assurance that an experienced broker and qualified valuer have assessed these factors and recommended a fair asking price.

Before that happens, a business owner may want an appraisal, to get an idea of how much their business might be worth.

Appraisals

Appraisals are carried out to obtain an indication of the market acceptance of a business should it be sold. The business’ financial statements are analysed and the adjusted net profit is appraised against other business models.

The appraisal report, which is normally five to eight pages long, will come in a written form and the value will have variance (+/‐) according to market conditions at the time.

There is no charge for this service to vendors who are genuinely looking at selling.

Valuation

Several of Business Mergers and Sales’ brokers are registered valuers. For a valuation, they will make a very detailed investigation into all aspects of the business and all the factors that may affect it going forward.

A close look at all of the details of business will be noted including the property lease, the staffing, the supply lines, the client base, the influence of the value of the AUD , management structures, vendors activities in the business, ongoing costs associated with the replacement of equipment and other items according to the nature and structure of the business.

A valuation is predominantly used to arrive at a market value of the entire business asset.

This information, along with the normalisation of accounts, is assessed against various business valuation methods and a detailed report is produced outlining all the workings.

As a result of this process a single figure valuation is achieved.

This document is usually above 35 pages in length and is also suitable for court situations, both family and civil. It may also be used for a ATO compliance purposes, internal forward planning strategy, revaluation for balance sheet purposes, and Partnership buyouts.

There is always cost for this service.

Return on investment (ROI)

In arriving at a valuation, a broker will most likely base it on the business’ net profit and the expected return on investment (ROI). Many industries have a ratio for valuing a business in this way, and Business Mergers and Sales has access to this data.

For example, the market may value a particular type of business at three times its annual net profit. However, a less secure business in the same industry might sell for only twice the annual net profit. So, for example, if a business in a particular industry has a net profit of $50,000, and the standard valuation for this industry is three times net profit, the starting point for the business’s value will be $150,000.

The broker will then consider those other factors outlined above, and decide whether to adjust that value up or down. This is to take account of the unique factors affecting each business. For example, if two businesses were each showing a net profit of $50,000 annually, and businesses in this particular industry are selling for three times the annual net profit, both businesses would initially be valued at $150,000. But if one business is experiencing increasing annual net profit and the other is not, then the first business would likely be valued higher.

Access to up‐to‐date business sales data

Because Business Mergers and Sales is a member of the Australian Institute of Business Brokers, which gives us access to the BizStats database. Details of business sales are collected from a network of businesses brokers across Australia.

Bizstats contains data on sales of cafés, restaurants, wholesale, manufacturing and retail businesses, service businesses including accountancy practices and many others. A broker can create a search using a wide range of variables including:

  • Industry sector (retail, wholesale, manufacturing etc.)
  • Industry type (food retail, accommodation, FMCG wholesale etc.)
  • Business type (newsagent, take away, pharmacy wholesale etc.)
  • Range of annual turnover
  • Range of sale date and sale price
  • Location of the transaction

They can then access details of similar sales in the database, including annual gross revenue, asset figures, operating ratios, and the price and terms of the sale.

Additionally, sale price/gross revenues and sale price/net profit ratios are calculated for each transaction reported. This allows Business Mergers and Sales’ valuers to benchmark their assessment of a business’ value against similar sales and current market conditions, arriving at the most accurate valuation possible.

If you’d like your business appraised or valued, just contact us to make an appointment.