Obtaining an accurate business valuation quotation – a handy checklist

We are often approached by phone or e-mail and asked to provide a business valuation quote with limited information on which to provide our quotation. 

This invariably leads to us having to provide a wide range of potential fees as a best guess and sometimes then having to discuss higher fees once the valuation commences if some of the assumptions we have made are incorrect.

We have, therefore, compiled a list of all the information that a business valuer would ideally need to have on hand to provide an accurate quotation.

See below our handy checklist together with some notes as to why the listed information is important.

Who are the parties involved in the matter?

This information enables to valuer to undertake required conflict of interest checks to ensure that the valuer is independent in accordance with the Family Law Rules and Australian Professional Ethical Standards Requirements.

Purpose of the Valuation (Submission to Court or mediation)

Matters that are to be submitted to the Court will need to be prepared as full Valuation engagements under APES 225 – Valuation Services.

Where parties are in mediation, we can often prepare an Indicative Valuation or Limited Scope Valuation report under APES 225 whereby the level of detailed work undertaken by the valuer is reduced by an agreed amount which in turn, then reduces the cost of the valuation.

List of the Entities to be valued

The greater the number of entities to be valued the more work is required in undertaking the valuation and preparing the valuation report. 

Brief business description for each entity

Understanding whether each entity trades, or alternatively is a passive property holding or investment holding entity, and the industry that the entity trades within is critical to assessing the cost involved in preparing the valuation.

This is particularly relevant for businesses that rely on contract income (typically more complex valuations) or have recurring income bases (industry rules of thumb may apply which can simplify the process).

Where there are multiple entities in a group all effectively undertaking one business (for example one entity may hold assets, one entity employs staff and another entity contracts with customers) a valuer may be able to cut across the structure by valuing the multiple entities on a consolidated basis.

Latest annual financial statements for each entity

The latest annual financial statements for each entity is the best information a valuer can be provided to get a gauge on the size and complexity of the entity being valued, which then impacts on the amount of analysis involved in undertaking the valuation and, therefore, costs for the valuation.

In the absence of financial statements for each entity a summary for each entity of:

• Revenue of the entity
• Earnings before interest and tax of each entity
• Net Assets of each entity

Sometimes for one reason or another financial statements may not be available.  In the absence of financial statements these 3 key financial metrics still give the valuer a sense of the size of the entities involved.

The required timing for the valuation report

An urgent report may mean that a valuer needs to throw resources at the valuation work to complete on time or may need to use more senior employees on all aspects of the valuation which can, therefore, impact on cost.
Alternatively, where there are no time pressures the cost may be reduced by the valuer being able to efficiently resource the valuation process.

How communications for the valuation are to be conducted with the parties

Will the valuer be able to communicate directly with any parties or accountants or is all communication to be in writing? 

Are file notes required to be completed and provided to all lawyers for meetings? Each of these aspects can add additional time and, therefore, cost to the engagement.

Providing sufficient information to all business valuers that quotations are obtained from also means that family lawyers have greater ability to hold valuers to the quotations provided and avoid fee increase discussions down the track.

Often, where RSM has been provided with a sufficient degree of information upfront, we are able to provide fixed fee quotations whereby we take on the risk of any cost overruns for delivery of the initial valuation report.

For more information 

To learn more about how we can help you get an accurate business evaluation quote, contact your local RSM office.