Advisers face ‘notoriously difficult’ challenges in private business valuations

This can be problematic for owners and those in related SMSFs, with the research showing that 90 per cent of business owners’ wealth is usually tied up in business and related assets.

One of the key findings also noted that few respondents considered financial advisers in regard to business valuation, with accountants and lawyers both being preferred more.

Succession Plus CEO Craig West said appropriate valuation of a business involves techniques that consider macroeconomic factors, industry drivers, and business risk, and because of this, advisers should engage with a succession planning specialist.

“At its core, business valuation is about determining two key things, the same things needed to value any type of asset: return and risk,” Mr West said.

Areas that advisers should be well versed on when valuing a business include add-backs (remove personal expense), comparative sales, identifying a purpose for the valuation, non-financial analysis, and profit.

“It takes time to build and increase value in a business,” Mr West explained.

“The difference between equity or long-term value that can be extracted when you exit versus income is the time frame.

“Therefore, advise your clients to start early, know what their business is worth and map out what needs to be done to drive value higher and make the business more attractive for when they are ready to realise that value.”