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Valuing a privately owned business ‘notoriously difficult’ for advisers

New research has found that the riskiest component for advisers when putting together a client portfolio or retirement plan is valuing a client’s privately owned business.

Analysis conducted by Australian business succession and exit planning firm Succession Plus revealed a pattern in that it is “notoriously difficult” for privately owned businesses to be valued, as most financial advisers are not qualified or licensed to do so “through no fault of their own”.

This can be problematic for owners, 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 valuating a business include addbacks (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 continued.

“The difference between equity (or long-term value that can be extracted when you exit) versus income is 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.”

New South Wales-based Coastal Advice Group is one firm that has adopted Succession Plus’ framework, and speaking to ifa, CEO Daniel Brown said it has proved to be hugely beneficial.

“The process really opens your eyes, as you are able to apply context to particular business details, plus realise unseen valuable aspects of a business that you would have typically overlooked,” Mr Brown said.

“Yet, there is some nuance to valuations across different sectors and industries. To address this, we ensure we are surrounded by a trusted professional network who are able to support both our internal decision-making as well as facilitate favourable outcomes for our clients.”

Valuing a privately owned business ‘notoriously difficult’ for advisers
Valuing a privately owned business ‘notoriously difficult’ for advisers
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Neil Griffiths

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.

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