One of the most common errors I see when reviewing business valuation reports is the treatment of shareholder loans. It happens often when the valuer isn’t a qualified accountant. To me it’s an error in common sense. Here’s why… When valuing a company it is important to understand that it’s a two-stage process. Stage one is to value the business including just the assets and liabilities strictly necessary to operate the business. Stage two is to add and subtract the other assets and liabilities of the company. These assets and liabilities have little to do with the business operations and Read More

It makes my stomach churn every time I hear it. And I hear it far too often from people that should probably know better. It usually goes something like “but Trevor, your business valuation is wrong…buyers don’t care about future profits, they care about the real figures”. I’m tempted to stop this article right here because the people that get it will get it and the people that don’t probably never will. But I’ll be patient and optimistic and give it a go. A few simple examples: 1) Would you buy a lottery ticket for yesterday’s draw? How could you Read More

When undertaking a business valuation I look at hundreds of factors to investigate how the business works and how much profit it should make in the future. Does the business need a genius to be successful? This is one of the key factors I’ll form an opinion on when calculating the value of a business. When undertaking a business valuation I look at hundreds of factors to investigate how the business works and how much profit it should make in the future. Does the business need a genius to be successful? This is one of the key factors I’ll form Read More

Benchmarks and industry rules of thumb are typically used by lazy or uninformed people who don’t understand basic finance theory. Here are 5 compelling reasons why: Source of the Data is Unreliable: Do you actually know where the data has come from? Did you know that the only mandatory reporting for small business is to the tax authorities? Do you think that every business in your industry reports the true performance of their business to the tax office? I’m not just talking about tax evasion issues, but also that the tax laws have rules for calculating profits that are very different Read More

I am seeing too many examples of professional qualifications being hacked and abused by questionable business models and marketing. Is your adviser actually qualified or not? You need to look through the marketing spin and determine whether the person giving you advice actually has the qualifications and experience to do so. Here are 4 recent examples I’ve personally come across: Tax Advice: I’ve seen a recent trend of tax agents appearing to lend their qualifications to others on the front line. In one particular example, a tax agent (based in one state) was looking to recruit unqualified employees/contractors in other states Read More

This was my response to a question from a business owner that didn’t have financial data available, but wanted an estimate of value: “Great to hear from you. I wish it was as easy as just doing a ballpark estimate, but the problem is that once I get the financial information I’m going to make so many changes to the initial information that it’s unlikely to bear much resemblance to the financials and tax returns. I’m going to take out expenses that aren’t ‘necessary’ to operate the business and I’m going to bring in hypothetical expenses from a buyer’s point Read More

This was my response to a question from a business owner trying to attract venture capitalist investment  You need to understand that there are different ways of valuing a business which are used for different purposes. Almost all valuations are forward-looking in nature, so the past isn’t relevant except as being an indicator of the likely future. So for example, in something like a divorce, the courts are happy to support the forward looking valuation concept, but because courts like “evidence”, even though the valuation is forward looking, I have to heavily take into account what has already happened as Read More

The good news is there is no “correct” way of valuing the shares. The bad news is there is no “correct” way of valuing the shares! In my experience it’s just a case of taking an intelligent position and then fully justify that position by explaining the method you’ve used and systematically showing why/how you’ve ruled out any other potential methods.  There is a growing realisation amongst valuers that there is no such thing as a “financial control premium”. The only benefit of control is the hypothetical (and able to be substantiated) forecast improvement to the shareholder’s position if they Read More

How to Value a Business

I get a lot of questions about how much a business valuation costs, how long it takes and what kind of report you get at the end. So I created this video to explain exactly how it works. You can watch the short video here Read More

I want to share with you a revolution that’s happening in business that you need to know about. It’s a revolution that affects us all and I call it the transparent marketing revolution. You see, when I began my career back in the 90’s it was only big companies that could afford good marketing. As time went by with the proliferation of the internet, marketing began cheaper and easier to create and distribute. So you would think that this is good thing for small business, but I think it’s quite the opposite. Why?…because it made fundamentally bad companies look better Read More