Whether or not you are considering an exit, it is important to know what your business is worth. And if you are considering selling, an independent assessment of the current market value is essential so decisions can be made from a fully informed place.
Business valuation is a specialised field. Many factors must be considered including historical performance, future prospects, cost structures that might be unique to the existing operators, trends within the industry, the attractiveness of the lease, the reliance on a particular location, the team, their commitment to stay on beyond a change in ownership, the extent to which the business systemised, the competitive landscape and the reliance on particular suppliers or customers. External factors must also be considered including the general economic environment and likely rates of return on alternative investments. There are many variables that can make a business incrementally more or less valuable – and a professional assessment of these will determine the weight and significance that should be given to each.The valuation opinion can be quite different depending on whether it is the “business assets and goodwill” being valued or the “shares in the company”. Often the business assets and goodwill approach is used when a business owner is contemplating a sale, as typically a purchaser will buy these and leave debtors, creditors, term loans, tax liabilities, shareholder current accounts and often some company vehicles behind to be dealt with and wound up by the vendor. On the other hand, a “shares in the company” approach is often used for periodic valuations for buy-sell insurance purposes, where a new shareholder is being introduced to an existing company – or where an existing shareholder is selling out.
Another important consideration Business Valuers address is whether all the shares in the company are being valued – or just a minority shareholding. Depending on the company’s constitution or shareholders’ agreement, a minority shareholding may yield very little influence in determining important matters such as dividend policy or remuneration of directors. A minority shareholding can sometimes be worth significantly less than a controlling interest as a result of these restrictions.
A Business Valuation can also form the basis of strategic planning for your business. It is a powerful starting point to establish the value of your business today and devise strategies that will increase the value of the business over the medium term, revisiting the valuation annually as a measure of the success of your implementation.
Business Valuations typically fall into two categories. The first is the Indicative Valuation, where the factors above are considered and a robust opinion is reached on the likely value of the shares or the business assets and goodwill. The second is a full Independent Valuation to New Zealand Institute of Chartered Accountants standard AE2, which demands full independence and a more robust level of verification and investigation. If a valuation is to carry weight for example as evidence in court, it must fall into the Independent Valuation category – otherwise an Indicative Valuation tends to be sufficient for most other purposes.
Whether you just need a periodic update of the likely market value of your business – or you’re considering selling, or are embroiled in a dispute of some sort, it is important to use an experienced Business Valuation firm.
ElevateCA Limited are Chartered Accountants and professional Business Valuers, and can meet your Business Valuation needs. There is no need to disturb your relationship with your existing accountant as we meet Business Valuation needs as one off projects and can work with your existing accountant to gather the information necessary. ElevateCA also provide peer review services for Chartered Accountants who may wish to sanity check their own opinions with an independent party. ElevateCA will be happy to discuss your business valuation needs and give you an estimate of the likely investment – just contact Fraser Hurrell to start the ball rolling.
