That's a formal valuation, and in New Zealand it's prepared by a chartered accountant. We're brokers. We prepare appraisals for owners thinking about selling, and when a formal valuation is what you need, we'll say so and point you to the right specialist.
When you need an independent valuation
A shareholder or partner is leaving. Many shareholders' agreements set out how shares are priced when someone exits. Often that means an independent valuer, so neither side is marking their own homework.
Separation and relationship property. A business can be relationship property under the Property (Relationships) Act 1976. Lawyers on both sides, and the Family Court if it gets that far, need a defensible figure.
Tax and restructuring. Selling or transferring a business or shares between related parties, such as to a family trust or a new company you control, generally needs to happen at market value. An independent report supports the figure if Inland Revenue asks.
Succession and estates. Passing the business to family, bringing in a new partner or settling an estate all need a fair, documented value.
Lending and disputes. Banks may ask for one when refinancing or funding an acquisition. Shareholder disputes and litigation almost always need one.
What a formal valuation report covers
A proper report shows the working behind the figure. You can expect:
- The purpose and scope of the valuation, and the date it applies to
- The standard of value used, such as market value
- The methods applied, often capitalisation of future maintainable earnings, with a discounted cash flow or asset-based check
- The financial information relied on, and how earnings were normalised
- Key assumptions and risks
- For part-shareholdings, how the size of the stake was treated, since a minority interest is often worth less per share than a controlling one
That level of detail is the point. It lets the other party, their adviser or a court see exactly how the number was reached.
Choosing a valuer
Check their credentials. Chartered Accountants Australia and New Zealand runs a Business Valuation Specialisation, and members who complete it can use the CA Business Valuation Specialist designation.
Make sure they're independent. The valuer shouldn't be acting for either side in a dispute, and shouldn't stand to gain from a particular result. Ask about any existing relationship with you or the other party.
Ask about relevant experience. Valuing a dental practice is different from valuing a transport company. Ask what they've valued in your industry.
Get the scope and fee in writing. A clear engagement letter sets out the purpose, the information they'll need, the timeframe and the cost.
How this differs from a broker's appraisal
A broker's appraisal is a written opinion of what your business would sell for on the open market, backed by comparable sales. It's the right tool for deciding whether and when to sell, and ours is free. It isn't independent in the formal sense, because a broker may go on to sell the business.
A formal valuation is independent, more detailed and built for a third party to rely on. Weighing up a business appraisal vs valuation? Start with who will rely on the number.
Where we can help
If the end goal is a sale, we can prepare a free, confidential business appraisal alongside any formal valuation. Shareholders who disagree on price often find the market view useful.
If you need a formal valuation, get in touch and we'll point you to chartered accountants who specialise in business valuation.
Talk to us about your situation
Independent valuation questions
Can a business broker do a formal valuation?
No. Brokers prepare appraisals of likely sale price. Formal valuations that third parties rely on are prepared by chartered accountants.
How much does an independent business valuation cost?
It depends on the size and complexity of the business, the purpose of the report and how much analysis is needed. Valuers quote a professional fee, so ask for one in writing before work starts.
Is a valuation the same as the price I'll get if I sell?
Not necessarily. A valuation estimates value on a defined basis at a set date. The price you get on sale depends on the buyers in the market at the time, which is what a broker's appraisal focuses on.