How To Use Third Party Research To Justify Your Business Valuation

INTRODUCTION:

It's one thing to get a business valuation that will often be shown to a bank for finance or a prospective purchaser of your business why you believe it to be what is driving its price. However, the more independent research that can be used to back up why your business is on the way up and has a positive future the better. Giving credence to small business valuations Sydney is crucial in any negotiating phase.

So where do you find this research and what are their strengths and weaknesses?

Figure 1: Make sure you do your research before buying or selling any business!

1. Australian bureau of statistics

The ABS is the single largest and most comprehensive source for business research. It includes all industry participants and is independent.

The problem is that it will generally be out of date by the time it is ready for release! The data may not cover all areas required by the valuation and some participants may have been merged (different industries shown together).

2. Industry Associations

Industry associations are usually available with a large number of participants. They tend to have a very good understanding of what their members are going through and the challenges they are facing. They will also have an idea on how their participants' industry will be valued if such a method exists rather than traditional ways.

On the other hand, not all participants will be members of the association and not all businesses have associations.

Some of the information may not be independent if being used for lobbying purposes.

 Figure 2: Research can be your watchdog!

3. Industry research (access economics or ibisworld)

These publications tend to be high quality and have a strong industry focus. They can identify trends and are independent. We subscribe to IbisWorld and find it to be an excellent source of up to date information.

The main downside to these organisations is that they tend to be high level and not always entirely relevant to smaller businesses.

The reports can be expensive but if your small business accountant subscribes, you can often get these reports from them for free as the accountant can use them as many times as they want and should be providing them as a value add for their clients.

The best small business accountants these days are providing these reports to their clients and using them as a business advisory tool.

4. benchmarking services

Companies such as CCH and BStar can provide great quality data with a strong business focus which are often split up by demographic (turnover size, location etc).

The main downside can be influenced by the size of the population sample so this would be need to be checked prior to any reliance.

BStar will generally not release any benchmark until they have a significant sample size.

CONCLUSION:

If you are trying to buy, sell or raise money for a business always refer to research to justify your position. Most on the ball accountants will have access to this research so this might be a great place to start. Reputable business valuers Sydney will also have this information available.

Buying or selling a business without checking independent research can be a recipe for disaster!