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Valuation of a Business (1)

How Do You Value a Business For Sale?
  I often get asked for a “rough idea” of what a business is worth.

Its an interesting question, but not one that can be answered in any meaningful way without drilling down into the specifics of the business because in the real world, the valuation of a business has many variables including industry types, differing market sectors and individual levels of profit and risk that make any ‘prophecy’ of business asset valuation as reliable in outcome as taking a trifecta bet at a race track.

This is particularly true in relation to a privately owned small business valuation whether the business is incorporated as a private company or operates as a sole trader.

Apart from their annual Tax Return, privately owned businesses in Australia, are not obliged, to lodge financial reports with any statutory body or publish any details of their activities in the public domain.

With publicly listed entities (companies listed on a stock market) there is more data for a business valuation company to analyse in the form of share prices, price to earnings ratios, historical performance and annual reports. Comparisons can be made between these indicators to determine a range of valuation metrics.

Private businesses, however, are as different as fingerprints - no two businesses are the same because they are generally ‘built’ around the needs of the business Owner. Business analysis and valuation of private businesses must therefore, in addition to a study of the financials, include a detailed Risk Assessment and take into account the Return on Investment that the business makes for the Owner and the Cost of Capital to buy the business.
  Contributed by: Value a Private Company.com.au
  About the Author:
  Paul Nielsen is a graduate of Chicago’s Loyola University School of Business Administration and is a Certified Mergers and Acquisitions Advisor (CM&AA).

He holds qualifications in Australia as a Certified Practicing Business Broker (CPBB) from both the REIQ & AIBB, is a Certified Machinery & Equipment Appraiser (CMEA), Licensed Real Estate Agent, Licensed Second Hand Dealer and Accredited Sponsor of the Australian Small Scale Offerings Board.

Paul is a Fellow of the Institute of Directors & Managers (FIDM) and an Accredited Senior Business Analyst (SBA) with the International Society of Business Analysts.

For three successive terms Paul was the elected National President of the Australian Institute of Business Brokers (AIBB) and is an active Member of the Australian Institute of Company Directors. Operationally, Paul has served on the Boards of Publicly Listed and Private Companies as Chairman, Executive and Non Executive Director over a 38+ year period.

Paul lives in Brisbane, Australia and can be contacted on +61 7 3010 9711 or +61 408824122 or by Email at pauln@avantiacorp.com.au

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