It is not just the numbers… what is the story behind them?
Financial statements are important. They show historical performance and trends. But business valuation should be forward-looking. The real test of value is the market-place itself and a valuer’s opinion should try to anticipate what would happen in the real world. Investors are buying the future profits and benefits of the enterprise.
Today, over 70% of the value of a business probably will not appear on the Statement of Financial Position – but be intangibles. These are often the major value drivers.
To discover these it is essential that the business appraiser obtains full information (both operational and financial) on the firm and analyses the risks (internal and external) that may impact future earnings.
As Roche rightly said "intellectual curiosity is the one requirement to be sought above all in prospective valuers” and “rigidity of thought and addiction to spreadsheets combined with a trusting nature are the two vices to be avoided."
Recent & challenging valuation engagements
- For buy / sell decision
A specialised, 2 person service business with owner’s earnings of $290,000 p.a. but only 1 realistic buyer. Right deal structure would produce win-win situation. - For business planning
Highly profitable master franchise, but agency agreement limited number of potential buyers and diminished value. - For partnership buyout
Long-established successful real estate agency but gross revenue halved from $2.5million to $1.3million (profits down from $600,000 to $70,000) in last couple of years due mainly to GFC. - For property relationship
Impressive marketing services company with sales approaching $5million p.a. but tech developments threaten the future and M.D. is “creative-genius”. How much personal goodwill? - For partnership split
Accountancy practice targeting small businesses. Growth stalled, and some debtor problems. Performance below industry standards. Market-based methodology