Understanding the Cost of a Business Valuation

Written by Elements Advisory Group
November 21, 2023
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Business Value, cost, Valuation service, Valuations, value

Whether you are preparing to sell your business, seeking financing, or navigating a shareholder dispute, understanding the costs associated with a business valuation is crucial.

Businesses vary significantly in terms of complexity and structure. Consequently, the cost of valuing a business is a more than one-size-fits-all scenario.

One can not compare a mom-and-pop pharmacy in rural Australia to the Terry White franchise store in Brisbane Central.

One of the paramount considerations is the purpose of the valuation report. An automated valuation might seem tempting, but such generic reports lack credibility, especially in legal proceedings or when seeking financial support from lending institutions.

A more thorough and personalised approach is necessary for a robust valuation that stands up to scrutiny. So are the qualifications and experience of the business valuer.

Explore all the reasons one may need a business valuation in our previous article.

How much does a business valuation cost?

Elements Advisory Group provide Business Valuation Services that drive strategy and compliance. We have business valuation specialists who will produce a comprehensive report. The cost ranges from $5000 – $25,000 + GST, depending on the complexity of the business.

To understand where your business is on the spectrum, we have gathered the factors that impact the cost of a business valuation.

Methodology and Expertise

The quality and precision of a business valuation depend greatly on the valuer’s knowledge of the local market and typical industry practices. An expert who knows the industry well will be more familiar with the specific details of the business. They can also give better evidence to support the valuation of trickier parts, like intangible assets that are hard to measure.

Simple business valuations may cost less, while complex businesses could range from $10,000 to upwards of $50,000. Firms performing comprehensive valuations can access large databases for market information on pricing and recent transactions. By refining net book value to reflect economic reality, professionals can save thousands or even millions of dollars from improper taxation, penalties, and additional fees.

For example, a business valuer will be able to assess if property or fixed assets have changes in value, if old stock will need to be sold at a discounted price or write off old debts that are not going to be paid.

Business valuation methods and formulas can also differ depending on the type of business. You can learn more about the different approaches to business valuations in our previous blog.

Data Collection

This stage of the process includes both quantitative and qualitative data.

The quality of information supplied by the business significantly impacts the valuation cost. A business that can supply five years of audited figures will take a considerably shorter time to value than one where forensic accounting is required to get the information.

A comprehensive data set, including financial accounts, forecasts, customer and supplier details, and organisational structure, streamlines the valuation process. Of course, the larger the organisation, the more the valuation analyst needs to inspect, the more the valuation will cost.

Business Complexity

The size, number of locations, departments, and convoluted accounting systems contribute to the overall cost. All external and internal factors need to be accurately identified and quantified. The more intricate the operations of the business, the more complicated the risk analysis is as well.

Software, data analytics, and many technology firms are built upon intangible assets. These may be more challenging and, therefore, more expensive to value.

Intangible assets can have a significant impact on valuations depending on the nature of the assets and the industry. Such examples could be:

  • Strong relationships with customers or suppliers,
  • Management stability – The profitability of an agency may collapse if a key creative person leaves,
  • Intellectual property ownership.

Utilising the mom-and-pop pharmacy mentioned earlier, imagine it is the only pharmacy in town. Nurse Betty opened it in the 70s and knows all the regulars by name. She even prepares recurring scripts and can remind people when their next refill is due. The local school has a contract to only use her store to supply everything for its nurses’ office.

However, a franchise pharmacy is trying to open a shop in the same town. They are cheaper and have a wider range of products. Who would the townspeople turn to when sick?

And, like intangibles, if your firm has a multiplicity capital structure that includes advanced debt or equity instruments like convertible bonds or warrants, then the valuation process will be more complex.

Objectives and Industry Type

Different valuation objectives, such as sale, financing, or dispute resolution, demand varying levels of analysis. Some valuations simply provide preliminary guidance, while a well-executed and researched valuation report may be required if it needs to stand on merits during sale negotiations or in court.

Legal valuations come with specific requirements specialists need to meet and may incur a premium due to the need for adherence to legal standards. The person performing the valuation must be certified, and the methods they use must follow certain legal standards.

The purpose of receiving the valuation may come with specific time restraints as well. Expediting the process will also increase the cost. If you have a partnership dispute and time only increases the conflict, waiting 4-6 weeks may not be possible.

Industry types also play a crucial role, with certain sectors being inherently easier or more difficult to value. The high number of physical, tangible assets means the firm can quantify each value to arrive at a total, objective valuation.

You Pay For The Quality Of The Valuation You Receive

In the Australian business landscape, considerations unique to the region may influence valuation costs. Local market dynamics, regulatory requirements, and industry norms should be factored into the valuation process.

While costs may vary, the investment in a comprehensive valuation pays dividends in terms of informed decision-making and safeguarding your business’s financial future.

Elements Advisory Group produce detailed valuation reports suited to your needs.

Contact us for a consultation at admin@elementsag.com.au or call 07 3878 9181.

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