Wondering how much your business is worth? Even if you’re not looking to sell anytime soon, knowing the value is essential for making informed decisions, securing finance, attracting investors, and planning strategically for the future.
In an ideal situation, you’ll sell your business when:
- You’re personally ready to sell
- The business has delivered strong results in recent years
- The economy is performing well, boosting sale prices
If you plan ahead, there’s plenty you can do to increase your business’s value and position it for a smoother, more profitable sale. Partnering with a professional adviser is the best way to get an accurate valuation and a clear path forward. But before you take that step, here are the key elements to review.
First Steps in Evaluating Your Business’s Value
Start by examining:
- The estimated market value of assets such as equipment, inventory, and property
- Your company’s financial performance – profit/loss, revenue, wages, cash flow, etc.
- Any non-arm’s length transactions, such as owner’s wages or related-party rent
- The current market environment and projected performance
If your financial statements aren’t up-to-date and accurate, now’s the time to get them in order. Not only is this crucial for valuation purposes, but it’s also essential for ongoing decision-making and compliance.
Understanding ‘Goodwill’
Goodwill represents the intangible value of your business – the portion of the valuation that exceeds the net value of its assets. It’s what makes a well-run business worth more than the sum of its parts.
Goodwill can be driven by:
- Brand reputation and recognition
- Loyal, long-term customers
- Favourable location
- Quality management
- Skilled, committed employees
Common Business Valuation Methods
Depending on your industry, size, and stability, different approaches may be used:
- Discounted Cash Flow (DCF) – Best suited to businesses with changing growth rates or margins, DCF calculates the present value of projected future earnings. It’s data-intensive and sensitive to assumptions, so accuracy is vital.
- Capitalisation of Maintainable Earnings – Popular for stable, mature businesses. It takes the average profit over time (excluding extraordinary items) and applies a multiple based on the business’s risk profile. Higher-risk businesses have lower multiples.
- Net Asset Value – Used for capital-intensive businesses or when other methods indicate a lower value. Assets and liabilities are adjusted to fair market value, with internally developed assets factored in.
How External Audits Add Value
While valuations are often linked to selling or restructuring, there’s another tool that can protect and potentially increase your business’s value – an external audit. More family-owned and privately held companies are recognising its benefits, even when not legally required.
Here’s why:
- Legislative Compliance – Some businesses must have audited accounts under ASIC or other regulatory rules. Even when not required, audits help confirm compliance with state and federal laws.
- Good Governance – An audit demonstrates transparency, reassuring investors, partners, and stakeholders that the business meets high standards.
- Fraud Prevention – Independent auditors review without personal bias, uncovering irregularities that might be overlooked internally.
- Tendering Advantage – In industries like construction, audited statements can strengthen tender applications.
- Bank Confidence – Lenders often view audited accounts more favourably, supporting finance applications.
- Process Improvements – Audits can highlight ways to streamline operations, improve controls, and boost efficiency.
Bringing It All Together
A professional valuation tells you where your business stands today and what’s driving that value. An external audit supports this by verifying the integrity of your financial information, improving governance, and identifying opportunities for improvement.
Even if you’re not selling now, these steps will help you:
- Strengthen your business’s financial position
- Build trust with stakeholders
- Identify and reduce risks
- Enhance operational efficiency
- Prepare for opportunities – whether that’s sale, expansion, or investment
Accru can help you determine your business’s current value, improve it over time, and ensure your financial reporting stands up to scrutiny. With expert guidance, you can make confident decisions that protect and grow your business’s worth. Have more questions? Contact an Accru advisor today