Services

There are two types of business valuation service

1. Business Valuation Consulting Agreement
2. Business Valuation Conclusion of Value

Price

Consulting engagement fee is $3900+GST (80% upfront to initiate the report, 20% paid pre-final report).

Conclusion of Value fee starts at $9900+GST (40% upfront, 40% on draft report and 20% pre-final report). Plus out-of-pocket costs and additional litigation fees paid on an hourly basis.

Scope

A Consulting engagement is a quicker, lower priced, less comprehensive but efficient way to value a business. It takes about 4 weeks. It is used by amicable parties wanting to understand what a business is worth, perhaps to sell the business to another shareholder or a third party, or merger negotiations. It would not be used in litigation.

A Conclusion of Value engagement is a formal valuation, comprehensive and lengthy report. It takes 8-10 weeks and may be used for disputes that may end up in court such as divorce or shareholder disputes. It fully complies with the National Association of Certified Valuators and Analysts standards, which is important for a legal dispute.

A Consulting agreement is done remotely, while a Conclusion of Value requires a site visit and director meetings.

There is complexity in arriving at a business value but here is a simplification of that process.

Business Valuation Process

A business valuation follows a structured process starting with the analysis of financial statements and the use of financial ratios to assess a company’s performance. Financial statements are adjusted to exclude any unusual or one-time revenues or expenses, ensuring the resultant data reflects the sustainable and recurring profitability of the business.

The next step is to select the future benefit stream, usually net cash flow to invested capital. We calculate this from either the historical accounts or projected earnings.

We calculate the capitalization or discount rate. A popular approach is the Build-Up Method which combines the risk-free rate, equity risk premium, size premium, industry risk premium, and company-specific risk premium. Subtracting a long-term sustainable growth rate from the discount rate provides the cap rate. The weighted average cost of capital (WACC) is used for invested capital, reflecting both equity and debt.

We consider valuation approaches: the asset approach (adjusted net asset method), the income approach (discounted cash flow and capitalization of earnings methods), and the market approach (private and public comps). Income is the likely lead approach with the other two being problematic or secondary.

Assuming its income then we divide the benefit stream by the discount/cap rate to calculate business value.

We need to adjust for control and marketability. This uses discounts for lack of control (DLOC) and lack of marketability (DLOM).

Having applied these discounts we have the business equity value.

See more about the process in this Business Valuation article.