How our Business Valuation Tool works
Obviously a key issue for many users – our platform is Hosted by Microsoft Azure using Active Directory Access Control and features the following security aspects – Data Sovereignty (all data based in Sydney), HTTPS / TLS, Data Encryption at Rest & Advanced Encryption Standard (AES) with 128 bit encryption.
On first entering the toll you will be required to enter some basic business parameters – industry (ANZSIC code), number of FTE employees, floor space of your business and of course the purpose or reason for the valuation. Thru our partnership with Xero, our tool automatically extracts key financial data for the preceding three years from your Xero file (if you do not use Xero – for now you will need to enter this data manually – V3 includes MYOB and QuickBooks etc.).
You can then work thru various questions to help accurately assess the risk in the business. For example: How long have you been in business? What effect does regulation have on your sales? How does your marketing function work? Are you dependent upon key people? These 40 questions calculate your risk score which feeds into our valuation algorithm.
Addbacks & Adjustments:
All privately owned companies accounts need to be adjusted for personal expenses, one off non-recurring costs and non-market value expenses. For example, in most privately held companies the directors or owners do not pay themselves a market salary (it is either way under the normal market salary for that role or maybe it is way over market salary), it is also common to make additional superannuation contributions and possibly even pay above market rent to a related entity. In the same way, personal expenses are often mixed in with the business and these need to be extracted and finally many businesses have one off non-recurring costs (a large legal case, an insurance claim, loss or gain on sale of a fixed asset). These addbacks are very important so we can establish normalised earnings and use that to calculate our NOPAT.
Our tool uses an algorithm to include (and weigh) the various input factors – financial, non-financial, benchmarking, risk and addbacks. This calculation then produces a valuation number – $ – how much is my business worth? Importantly each time to tool is used and new data is added (along with normal changes to interest rates, foreign exchange, and market activity) the algorithm is updated and becomes more accurate. We will shortly be launching an update which includes detailed benchmarking (comparison of businesses against industry averages and competitors to detect over or under performance – also a great diagnostic tool for accountants).
Our findings and the underlying analysis are presented in a 14-page Special Purpose Valuation report, which is APES 225 compliant, meaning it can be used in family law proceedings, partnership disputes, wills and estate planning (and disputes) as well as establishing fair market value for example, for a CGT restructure.
For further information – check out our FAQ: https://valuations.successionplus.com.au/faq.php
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