Many business owners do not know if their business needs to be valued. They are also often unaware of the true market value of their business. There are normally four key reasons a business valuation is performed, and all require a disciplined approach and careful planning. It can be a very costly process for owners if a valuation is overlooked or even partially delayed.

The four most common triggers for a valuation are:

1. the sale or purchase of a business
2. restructuring an existing business
3. family law or shareholder disputes
4. strategic business planning

Sale, purchase or investment in a business

A business owner may have been approached by someone wanting to invest in their business, or the owner may have decided to offer a share in the business to senior managers or staff. All parties in these transactions need to know what is fair value for the business. However even experienced owners may not know the real value. So, an independent, business valuation is essential. That independent opinion can be a sound reference point for further negotiations.

Alternately a business owner may want to purchase or invest in another business. Getting that other business's true value is the best way to test the asking price of a potential investment.

Business restructure

Owners may want to restructure their business, or their accountant may suggest a restructure will provide tax and estate planning advantages.

Again, it is crucial that any restructure is undertaken at fair value. That requires an independent opinion to support the valuation. The Tax Office is very prescriptive when it comes to the evidence required to support transfer prices in related party transactions. Mistakes in this area can be very expensive.

Family law or shareholder disputes

Disputes do unfortunately happen between business partners and in personal relationships, such as a divorce or marriage breakdown.  When they occur, it is vital an independent valuation is carried out before the final financial separation. If the dispute is headed to court then valuations will automatically be required.

Sometimes it is possible to sense that a dispute may be looming, Having a valuation before the final break can assist with forward planning and what may be possible.

Strategic planning for the business

Business owners often have a clear plan for the business and the various stages of its life. Sometimes that may include an exit point for the owner.  Even if that is not the case, there are clear stages in the evolution of the enterprise where change is likely. An informed understanding of the true value of a business - and how that value can be enhanced through smart decision making - can be an invaluable tool to an owner. A solid valuation model and a realistic base value position can be.an effective way to build a strategic plan for a business.

If any of the four triggers apply, business owners should be seeking a valuation. Those valuations require an experienced valuer who understands business valuations and differing scenarios. Hayes Knight has completed hundreds of business valuations and can assist with your valuation requirements.

You can contact us on 02 9221 6666 or leave us a message.

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Hayes Knight (NSW) Pty Ltd (ASIC No. 415 617) ABN 25 125 243 692 is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361.

Ray Itaoui (ASIC No. 1267767) is a Limited Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361.