Start with the purpose, basis and date
A valuation report answers a specific question, and the opening pages should say what it is. Look for the purpose (a sale, a shareholder exit, a restructure, a family law matter), the basis of value being applied (market value, a value defined by an agreement, or something else) and the valuation date. Those three settings determine everything that follows.
If any of them is missing, or does not match your matter, stop and ask. A report prepared for an owner's planning is not automatically suitable for a tax transfer or a court, and a report on one basis cannot simply be relabelled for another. Our guide on estimates versus signed reports explains why the intended use matters.
Check the scope and the information relied on
The scope section describes what the valuer did and did not do. Some reports rely on management accounts without verification; some include a site visit and management interview; some are limited to a desktop review. None of those is wrong in itself, but the reader should know which one they are holding.
The information relied on should be listed specifically: which years of financial statements, which management accounts, which contracts, leases, registers and correspondence. Compare that list with what you know exists. If a document that could change the picture was not provided, the conclusion is only as good as the gap allows, and the report should say so.
Follow the financial analysis and every normalisation
The business overview should describe what the company does, who its customers are, how it earns its money and what it depends on. The financial analysis should then set out several years of revenue, margins and earnings, and explain any movements. A reader who knows the business should recognise it in this section.
Normalisation is where reported profit is adjusted to reflect what the business would earn under the assumed ownership. Owner remuneration replaced with a market salary, one-off legal costs, related-party rent, personal expenses and discontinued activities are typical items. Each adjustment should state what happened, why it is adjusted, whether it recurs and what evidence supports the amount. The EBITDA adjustments guide sets out the standard to expect.
Test the method, the multiple and the bridge to equity
The report should say which method was used and why it suits this business and the available evidence. Where a capitalisation of earnings method is used, the multiple is the single most influential judgement in the report, and it should be reasoned rather than asserted. Look for a discussion of the business's size, growth, customer concentration, owner dependence and industry risk, and for any cross-check against a second method or a range. Our guide on valuation multiples explains what supports a multiple.
The bridge then moves from the value of the operations to the value of the equity, and from the whole to the particular interest. Debt, surplus cash, non-operating assets, shareholder loans and working capital should each appear with an amount and a reason. If the report values a parcel of shares, it should explain how the parcel's rights and any adjustments for control or marketability were treated.
Read the conclusion with its assumptions and limitations
The conclusion should state a figure, or a range with a point within it, for the precise subject named at the start. It should reconcile to the working that precedes it. A conclusion that appears from nowhere, or that does not match the bridge, is a signal that something was changed late.
The assumptions and limitations section is not boilerplate. It tells the reader what the valuer took as given, what could not be verified and who may rely on the report. The valuer's declaration should identify who prepared and signed the report, confirm independence from the parties and state the standard the work was prepared under.
Red flags that should prompt questions
Common weaknesses and what they usually mean
| What you see | Why it matters |
|---|---|
| Add-backs with no source or explanation | Earnings may be overstated and cannot be tested |
| A multiple stated with no reasoning | The most important judgement is unsupported |
| No bridge from business value to equity value | Debt, cash and other claims may have been ignored |
| No stated basis of value or date | The report may be answering the wrong question |
| An information list that omits documents you know exist | The picture may be incomplete |
| A conclusion that does not reconcile to the working | Something changed after the analysis was done |
None of these is fatal on its own. Each is a reason to ask the valuer a direct question and to expect a direct answer, and a good report will already have anticipated it.
Questions to put to the valuer before you rely on the report
Ask what purpose and basis the report was prepared for and whether it is suitable for the recipient you have in mind. Ask which adjustments they considered and rejected, what evidence sits behind the multiple, and how the bridge would change if a particular item were treated differently. Ask who signed the report and whether they will answer questions from your accountant, lawyer or the other side.
If you are commissioning a report rather than reviewing one, the signed business valuation service is built to include each of the sections above. Standard signed reports start from $1,495 + GST for suitable, straightforward matters, and the first conversation with Jackson Wilson is free.
Apply it to your matter
A clear scope is the next step.
Discuss the business, purpose, valuation date and intended user with Jackson Wilson. Valuation Group is based in Double Bay and takes enquiries from Sydney and Australia-wide.
General educational information. Examples are hypothetical and do not value a real business. The appropriate treatment depends on the purpose, evidence and agreed scope.