How to value a business: the eight steps a valuer takes

The eight steps at a glance

A credible valuation works through the same questions in the same order. A mistake in step one, such as valuing the business when the question was the shares, flows through everything after it.

1. 01Define what is being valuedThe interest, date, purpose and basis of value.
2. 02Gather the recordsSeveral years of financials and the facts behind them.
3. 03Normalise the earningsFind the profit a new owner could keep producing.
4. 04Assess risk and growthHow reliable are those earnings, and where are they heading?
5. 05Choose the methodUsually capitalised earnings for a profitable private business.
6. 06Cross-checkTest the answer from a second direction.
7. 07Bridge to equity valueDeduct debt, add surplus cash and assets.
8. 08Apply discounts if neededOnly for a part interest, and only if the basis allows.

Step 1: Define what, when and why

Before anyone opens a spreadsheet, four things need pinning down.

• The interest. The whole business, all the shares in the company that owns it, 30% of those shares, units in a unit trust, or goodwill alone. These are different assets with different values.
• The valuation date. A valuation speaks at one date only. Value moves when a major customer leaves or a contract is won.
• The purpose. A sale, a shareholder exit, a restructure, a tax event or succession. It decides who will rely on the report.
• The basis of value. Most tax and commercial work uses market value: broadly, the price a willing but not anxious buyer would pay a willing but not anxious seller, both informed and dealing at arm's length. A shareholders agreement may set a different basis for an exit, and where it does, the agreement generally governs.

Tax is a common reason the date matters. Under the capital gains tax changes, CGT assets held by Australian resident individuals, and by trusts with at least one eligible beneficiary, at the end of 30 June 2027 are generally treated as sold and bought back at market value just before 1 July 2027. A valuation is one way to establish that amount. Some owners may be able to choose an apportionment method the Government is preparing instead; it was still a draft in October 2026. Companies are treated differently. Whether you need one is a question for your tax adviser. A valuation as at 30 June 2027 is prepared after that date, once your records to 30 June 2027 are available. You can book your place now.

Family law property settlements are prepared through our dedicated family law practice, Family Law Valuations.

Step 2: Gather the records

The quality of the records sets the ceiling on the quality of the valuation. Expect to provide:

• Profit and loss statements, balance sheets and tax returns for the last three to five years, plus the current year to date.
• Who the owners are, what each does in the business and what each is paid, including super and benefits.
• Key contracts: the premises lease and major customer, supplier, franchise or licence agreements.
• The share of revenue from your top five or ten customers, and how long they have stayed.
• Any shareholders, partnership or unitholders agreement, loan and finance agreements, and any budgets or forecasts.

Accounts a year behind are the most common cause of delay. The full checklist is in what information is needed for a business valuation. We collect documents only through the secure upload link on your matter, never by email.

Step 3: Normalise the earnings

Private business accounts are prepared for tax and the owners, not for a buyer. Normalising adjusts them to show the profit a new owner could expect on ordinary commercial terms. This is where careful and rough valuations usually part ways.

Next comes the earnings measure. Owner-operated businesses are often valued on earnings before interest and tax (EBIT), or on EBITDA (before depreciation and amortisation too) where depreciation does not reflect the real cost of replacing equipment. The measure must match the multiple: an EBITDA multiple applied to EBIT gives the wrong answer.

Finally, the valuer settles on maintainable earnings: what the business can keep earning, not its best year. One strong year after two flat ones usually carries less weight than a steady trend.

Step 4: Assess risk and growth

Two businesses with identical profits can be worth very different amounts, depending on how confident a buyer can be that the profits will continue and grow. A valuer looks at:

• Owner dependence: whether customers, suppliers and staff deal with the business or with you personally.
• Customer concentration: one customer at 30% of revenue is a real risk, however loyal it has been.
• Contracts and the lease: assignable agreements with time left to run support value. A lease with one year left does not.
• People and systems: a capable second tier who would stay through a sale, timely accounts and documented processes.
• Industry and outlook: demand, competition, margins and regulatory change.
• Growth: evidenced growth adds value. Growth that needs investment a buyer would have to fund is worth less.

This judgement becomes a number in step 5: higher risk means a lower multiple, or a higher discount rate in a cash flow model. Each driver is covered in what drives the value of a private business.

Step 5: Choose the method

No single formula fits every business. The valuer picks the method that suits the facts, then usually tests it with another.

Where earnings are too low to support goodwill, net assets often act as a floor. Business valuation methods explains each method and its weak points.

Step 6: Cross-check the answer

A single method can produce a confident but wrong number. Typical checks:

• The implied multiple: is it sensible for a business of this size, risk and industry?
• Implied goodwill: the value less net tangible assets. Do the earnings support that much goodwill?
• A buyer's view: could a buyer fund this price, pay a manager, service the debt and still earn a reasonable return?
• A second method or a rule of thumb, as a sense check rather than a substitute.

Where checks disagree, the valuer works out why rather than averaging, and settles on a range before a single figure.

Step 7: Bridge from enterprise value to equity value

Steps 3 to 6 usually produce an enterprise value: the value of the operations, assuming normal working capital and no debt. Shareholders and unitholders own the equity, so the valuer bridges the two.

• Deduct interest-bearing debt: bank loans, overdrafts and equipment finance.
• Deduct debt-like items: loans owed to shareholders, unpaid tax and employee entitlements a buyer would expect to be funded.
• Add surplus cash: cash above what the business needs to trade.
• Add surplus assets: assets not needed to earn the profit, such as a share portfolio, valued separately.
• Adjust working capital that is well above or below its normal level at the valuation date.

A business can have a healthy enterprise value and modest equity because of debt, or the reverse because of cash. Ask your accountant to confirm loans with owners and related entities at the valuation date.

Step 8: Apply discounts for a minority interest

If the whole business or all the shares are being valued, the job usually ends at step 7. A part interest raises one more question: is it worth its pro-rata share of the equity, or less?

A minority holder usually cannot appoint the board, set dividends or force a sale, and private company shares are hard to sell. Those features can justify a discount for lack of control, for lack of marketability, or both.

Whether a discount applies, and its size, depends on the purpose, the facts and any agreement. Many shareholders agreements set a pro-rata price for an exit, and that generally overrides the market convention. For tax purposes the question is generally the market value of the interest actually held, and the ATO says a valuation is better supported when it specifies that interest and its associated rights. More in valuing a minority interest in a private company.

A worked example

Two lessons. The owner salary adjustment moved the value more than the bank loan did, so normalisation deserves the most care. And the step 8 gap comes from the agreement, not the arithmetic: had it required a pro-rata price, no discount would apply.

What you can do yourself, and when to get a report

Defining the interest, pulling the records together and listing the obvious adjustments will tell you more than an online calculator, which applies a generic multiple to whatever profit you type in.

The judgement sits in steps 4 to 8, where two people with the same accounts reach different numbers. When someone else will rely on the number, an independent written report sets out the reasoning so it can be tested. A calculation or limited-scope engagement is not a full valuation report; we say which one you are getting before you engage us.

Having Independent Business Valuation value it

We charge one fixed fee of $999 + GST for a full valuation report on one business or ownership interest with annual turnover under $10 million, prepared by a suitably qualified business valuer at Valuation Group. Groups, several interests and turnover over $10 million are quoted in writing. 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.

A fixed-fee valuation is delivered in 2 business days for turnover under $2 million and 3 business days for turnover $2 million to $10 million. 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. Software helps us organise and check information; a qualified valuer makes every judgement and signs every report. See our process.