Who can value a business in Australia, and what to ask before you engage them

Four very different things are called a valuation

A business broker's appraisal is an opinion of likely selling price, prepared to win a listing and usually free. It reflects the broker's experience of the market, which is valuable, but it is not independent of the outcome, and it is rarely accompanied by the working. An accountant's estimate draws on detailed knowledge of the business and its accounts, and may be entirely sound, but it is often informal, may not state a method or a basis, and may not be something the accountant is willing to sign for a third party.

An online calculator applies a formula to a few inputs. It can give a rough sense of scale in minutes, and our own calculator is offered on exactly that basis, but it cannot see the risk, the records or the adjustments that determine a real result. An independent signed valuation report is prepared by someone with no stake in the outcome, states its purpose, basis, date, evidence, method and limitations, and is signed by the person responsible for it.

Comparing the four sources of a business value

Is a licence required to value a business in Australia?

Unlike some other professions, there is no single licence required to value a business in Australia. Real property valuation is regulated in some states, and certain reports for specific purposes must be prepared by particular professionals, but a business valuation as such can be prepared by anyone willing to put their name to it. That is why the title "valuer" tells you little on its own.

The consequence is that the burden of checking falls on the person commissioning the work. Professional bodies set standards that their members must follow when they prepare valuations, and some readers, such as courts and the Australian Taxation Office, have their own expectations about what a report must contain and who should prepare it. Ask your lawyer or tax adviser what those expectations are before you engage anyone.

What actually matters

Independence: the valuer should have no interest in the result, no fee contingent on the value, and no other role in the transaction. Relevant experience: ask how many businesses of a similar size and kind they have valued, and for what purposes. A valuer who mainly works on large corporate transactions may not be the right fit for an owner-operated business, and the reverse is also true.

A stated method: the report should say which approach was used and why it suits the business, not just present a number. A signed report should identify the purpose, the basis of value, the valuation date, the information relied on, the material assumptions, the conclusion and the limitations, and should name who may rely on it. If a draft arrives without those sections, ask for them before the report is finalised.

Professional indemnity insurance protects you if the work is negligent, so ask whether it is held and at what level. Willingness to explain: a valuer who will walk you and your adviser through the reasoning, answer questions and, where necessary, support the report if it is challenged is worth more than one who delivers a document and disappears.

Match the valuer to the reader

The right valuer depends on who has to rely on the report. For a sale negotiation, a clear, well-evidenced report that a buyer's adviser can test is what matters. For a tax matter such as a restructure or a related-party transfer, your tax adviser will want a report that addresses the relevant basis of value and documents the evidence in a way that can be produced later if the position is reviewed.

For a family law or shareholder dispute, the court or the parties may require an expert who understands the rules that apply to expert evidence and is prepared to be cross-examined. Ask the intended reader what they need before commissioning work, because a report prepared for one purpose is not automatically suitable for another, as our guide to estimates and signed reports explains.

Questions to ask any valuer, including us

Put the same questions to every valuer you are considering, and compare the answers rather than the price alone. Any valuer should be able to answer each of them plainly, and we expect to be asked them.

• Who will do the work, and who will sign the report?
• What is your experience with businesses like mine, and for this purpose?
• Which method do you expect to use, and why?
• What information will you need, and what happens if some of it is missing?
• Will the report state its purpose, basis, date, evidence, assumptions and limitations, and who may rely on it?
• Do you hold professional indemnity insurance?
• Is any part of your fee contingent on the result?
• Do you have any relationship with the other party, the broker or the adviser involved?
• Will you explain the reasoning to my accountant or lawyer, and support the report if it is questioned?
• What is the fee, what does it include, and when will the draft be delivered?

What to do before you engage anyone

Write down the purpose of the valuation, the date it needs to be as at, and who will read it. Ask that reader what they require, because two documents both called a valuation can involve very different work. Then work through the questions above with each person you are considering.

Valuation Group is based in Double Bay in Sydney and works with owners and advisers across Australia by phone, video and secure document exchange. The first conversation is free, and we will tell you if your matter needs a different kind of expert. Contact Jackson Wilson to discuss what you need, or read what to prepare before that conversation.

General educational information. Examples are hypothetical and do not value a real business. The appropriate treatment depends on the purpose, evidence and agreed scope.