Business sale valuation before you go to market

Why value the business before you go to market

Most owners first hear a number from a broker who wants the listing, a buyer who wants a bargain or a friend who sold something similar. None of those is independent. A valuation built from your own records, with the reasoning written down, lets you judge every later number against it.

It also shows you what a buyer will find. Due diligence is where prices fall: the add-back with no invoice, the customer who makes up 40% of sales, the lease with 18 months left. Found early, most of these can be fixed or explained. Found by the buyer, they become a reason to cut the price.

• Deciding whether to sell now, or fix what holds the value back first.
• Setting an asking price and a walk-away figure before offers arrive.
• Answering an approach from a competitor, manager or partner without guessing.

Maintainable earnings and the add-backs a buyer will accept

Most small and medium businesses sell on a multiple of earnings, so the earnings figure usually matters more than the multiple. Buyers do not pay for last year's reported profit. They pay for the profit they believe the business will keep making under new ownership: maintainable earnings.

Getting there means normalising accounts that were prepared for tax: adding back costs a new owner will not carry and deducting costs the accounts leave out. The test for every adjustment: would a careful buyer, with their own accountant, accept it?

Working capital, stock and what the price includes

Two offers at the same headline figure can be worth very different amounts once stock, debtors, creditors, staff entitlements and debt are dealt with.

• Asset sale or share sale. Many small business sales transfer the business assets: goodwill, equipment, stock and the name. A share sale transfers the company itself, with its debts, contracts and history. The valuation has to match the deal.
• Stock. Often priced on top at cost, counted at settlement, with slow or obsolete lines excluded.
• Working capital. A buyer assumes a normal level of debtors, stock and creditors at handover. Collect every debtor and stretch every creditor before settlement, and expect an adjustment.
• Staff entitlements. Leave accrued by employees who move to the buyer is commonly credited to the buyer or reflected in the price.

The report states exactly what the value covers, so you can compare it with an offer like for like. Buying instead? See business acquisition valuation.

What buyers price as risk

The multiple a buyer applies is a judgement about how safe the earnings are, so the same profit can sell for very different prices.

• Owner dependence. If customers call you and staff wait for your decisions, the buyer is buying a job, not a business.
• Customer concentration. One customer providing a large share of revenue, without a written contract, is priced heavily.
• The lease. A short remaining term, no option to renew or a landlord who must consent to a transfer can stall a sale.
• Contracts and licences. Supply, franchise and government contracts can need consent, or can end, when ownership changes. A licence held personally may not move with the business.
• Record quality. Late or inconsistent accounts make a buyer assume the worst.

A valuation names these risks and shows how they affect the value, which gives you a list of what to fix first. For the wider picture, see what drives the value of a private business.

Price and value are not the same number

Market value is the price a willing but not anxious buyer and seller would agree, both properly informed and neither under pressure. It is the right reference point, not a prediction of what you will be paid.

The actual price depends on who turns up: a competitor who can absorb your overheads may pay more, a rushed sale may achieve less. Terms matter too: an earn-out is worth less than the same figure in cash.

Treat the valuation as your anchor, not your asking price: list above it if you like, and let it inform your walk-away figure.

Using the valuation with a broker

A broker's appraisal is a market opinion, usually from someone paid a commission on the sale, who wins the listing partly on the number they quote. That does not make it wrong. It does make it worth testing.

1. 01Brief the brokerShare the normalised earnings and the evidence behind each adjustment, so the marketing rests on numbers that survive due diligence.
2. 02Test the appraisalIf it is well above the valuation, ask what the broker sees that the valuation does not. Sometimes there is a good answer.
3. 03Set your walk-away figureDecide it before the offers arrive.
4. 04Prepare for due diligenceA buyer's accountant will ask the questions a valuer asks. Answer them once, in writing.

Selling around 1 July 2027

From 1 July 2027, the 50% CGT discount for Australian resident individuals and trusts (including individuals' shares of partnership gains) is generally replaced by cost base indexation for gains that build up from that date, and resident individuals pay at least 30% tax on those capital gains, with some exceptions. The part of a gain that built up before then can still get the 50% discount when the asset is sold, if the usual conditions are met.

To split the gain, Australian resident individuals, and trusts with at least one eligible beneficiary, holding CGT assets at the end of 30 June 2027 are generally treated as if they sold them just before 1 July 2027 and bought them back, by default at market value. A valuation as at 30 June 2027 is one way to work out that amount. The law also lets the Government set an apportioning method instead, but that method is still a draft (released for consultation in August 2026, not yet final). Companies can't use the 50% discount, so this rule does not apply to a company's own post-1985 assets.

For CGT, a sale generally happens when the contract is entered into, not at settlement, so the contract date may matter. The small business CGT concessions continue where the conditions are met. Your tax adviser decides how this applies to you. More in CGT business valuation 2027.

Scope, fees and timing

The fixed fee applies once we confirm the interest, purpose, structure and records fit the fixed-fee scope. Anything outside it is quoted in writing before we start. Fixed fee, confirmed in writing before we start. No hourly billing and no surprises. Delivery time starts once payment and all required information have been received, and pauses while we wait for answers to our questions or your signed representation letter. Tell us your deadline and we will tell you on the call whether we can meet it. Each additional valuation date, for example 30 June 2027, is $495 + GST.

You receive a full valuation report prepared by a suitably qualified business valuer at Valuation Group. Guided by APES 225 Valuation Services. A calculation or limited-scope engagement is not a full valuation, and we tell you which one you are getting before you engage us. The report is for sale planning, not a court expert report. Family law matters go to our dedicated family law practice, Family Law Valuations.