What's your business really worth? It depends on what you're valuing and why.
Whether you're selling, raising capital, restructuring, settling a dispute, or planning a succession, understanding how business valuations actually work changes the conversation. The same business can look very different on paper depending on the question being asked.
If you're heading toward a sale specifically, the companion piece is How to sell your business: a practical guide to avoiding costly mistakes. This one is about the number itself.
Why you might need a business valuation
A valuation isn't just useful in a handful of situations, it's essential. The most common:
- Buying or selling a business
- Raising capital or bringing in a new shareholder
- Succession planning
- Tax events (CGT, restructuring, share issues)
- Shareholder exits or disputes
- Family law settlements
- Employee share schemes
The reason behind the valuation shapes how it's done and what it has to prove. A valuation prepared for a sale looks different to one prepared for a tax event, even on the same business in the same week.
Three valuation methods that matter
There are a handful of ways to value a business. For most private Australian businesses, three carry the weight.
Profit × multiple (capitalisation of earnings). This is the method most owners are familiar with: take the profit, multiply by a number, there's the valuation.
Two things matter:
- "Profit" usually means EBIT (earnings before interest and tax), normalised to reflect the true commercial performance
- The "multiple" reflects risk, growth potential, and comparable sales. It's not a guess. It tracks what buyers are paying in your industry.
Normalisation removes:
- One-off costs (legal fees, restructure expenses)
- Non-commercial items (overpaid owners, related-party expenses)
- Accounting quirks (depreciation policy choices)
Software businesses sometimes use a revenue multiple instead of profit.
Discounted cash flow (DCF). This method is about future cash. It's common for:
- Startups or pre-revenue businesses
- High-growth businesses reinvesting profits
You forecast future cash flows, add a terminal value, then discount it all back to today. Why? Because $1 today is worth more than $1 in ten years.
It's highly technical, and only as strong as the assumptions feeding it. A great tool in the right hands. Risky when forecasts are optimistic or vague.
Net asset value (NAV). NAV is balance-sheet based. It works best for:
- Asset-heavy businesses (equipment hire, manufacturing)
- Businesses with low profitability but strong underlying value
There are variations:
- Net tangible assets, which excludes goodwill and intangibles
- Adjusted NAV, which revalues assets and liabilities to fair market value
- Liquidation value, which is what the business is worth if shut down tomorrow
NAV can oversimplify if the business has strong cash flow or goodwill the books don't reflect.
What are you actually valuing?
Before any method is applied, get clear on what's being valued. The same word "valuation" can mean three different things.
Asset valuation. Sometimes you don't need a full business valuation, you need to value a specific asset: IP being licensed, equipment being sold, real estate being transferred. Often driven by tax, legal, or licensing requirements rather than a sale of the business.
Enterprise value. This is the value of the business as an operating concern: the team, the systems, the IP, the customers, the cash flow. It's what a buyer would pay to take over the business itself, separate from the company structure that owns it.
Equity value. Equity value is enterprise value plus cash, minus debt. It's the number that matters when shares are changing hands. Selling company shares transfers everything: the operations, the assets, the liabilities, the history. The good, the bad, and the balance sheet.
If the deal isn't clear on which of these three is being valued, it gets messy quickly. More than one buyer has assumed they were buying the business and woken up owning the company.
A starting point
Whether you're valuing for a sale, a raise, a structure change, or a dispute, the work starts with the same step: getting clear on what's being valued, why, and what numbers actually feed in. The wrong method on the right business produces a number that won't survive scrutiny.
If you're heading toward a sale, valuation is the front end of a longer process. The next piece is How to sell your business: a practical guide to avoiding costly mistakes.
If you want a number you can actually use, that's the work the exit and succession service covers as standard: scoping the question, normalising the numbers, choosing the right method, and producing a valuation that stands up.
It's the kind of work worth doing properly the first time.
