Bizstats Guide to SME Valuations
10 Key Questions to ask
when you value a business
Bizstats supplies valuable information on thousands of SMEs that have been sold in New Zealand. Data on market transactions can support defensible valuations.
1. What are you valuing?
- Is it shares in a company?
- Is it the going-concern “assets” (tangible assets i.e. plant, intangibles & stock - this is the way that most businesses are sold)
- Is it a full interest or part interest?
2. What is the purpose of the valuation?
- Buy / Sell decisions?
- Partnership / Marital splits?
- Litigation Support?
3. What standard of value will apply?
- Fair Market value or Fair value?
- A particular standard may be mandated.
- Is it a formal valuation (AES No.2), or an indicative opinion?
4. What is the effective date of the valuation?
- The “as at” date may be different to the present date.
- Under AES No.2, the appraiser can only use information that was known, knowable or reasonably foreseeable at the effective date.
5. What is the key information concerning the business?
- History, accounts, operational details, staffing, location, property tenure including rent reviews, customers, suppliers, processes, etc
- What value modifiers apply to this business?
6. What is happening in the industry?
- Market growth / decline?
- Economic factors?
- What risks does the business face – key staff, technology or legislative changes?
7. What are the key intangibles of the business?
- Identify intangibles (rights & contracts, intellectual property & databases, relationships, going concern goodwill, etc.)
- How transferable are the intangibles? (Issues of personal goodwill.)
8. How ‘honest’ are the financial accounts?
- Identify “one-off” sales or expenses
- Are some expenses discretionary? – i.e. personal, or not necessary for the production of income?
- Normalise the accounts.
- Historic figures are no guarantee of future performance.
- An enquiring mind & a keen sense of curiosity may reveal more than an addiction to spreadsheets.
- Can financial forecasts be supported?
9. Which are the appropriate valuation methods to use?
- Asset-based, market-based & earnings-based approaches should be considered
- Two or three methods should be applied to check your answer.
- Sanity check – what would you personally pay for this business?
10. What does the market say?
- All valuations are only opinions - the only true test of value is an arms-length sale on the open market.
- Is the business saleable?
- Transaction data from actual sales of similar businesses provide a valuable guide
The Bizstats Data Base has comprehensive statistics on sales of many thousands of New Zealand SME’s and is used by brokers and valuers to support defensible valuations. If you would like to learn more about the availability of Direct Market Data, please contact us or give us a call on +64 (3) 962 0007.