More questions owners ask about value

Four bases are in ordinary use in Australia: net profit, EBIT, EBITDA and seller’s discretionary earnings. They are not interchangeable, and a multiple attached to one of them means nothing attached to another. If you have been told that businesses like yours sell for three times, and you do not know which base that three attaches to, you have been told nothing.

Seller’s discretionary earnings is EBITDA plus one working owner’s total remuneration and personal benefits. Because SDE is a bigger number than EBITDA for the same business, the SDE multiple is smaller. On illustrative round figures, a business generating $500,000 a year before the owner takes anything, with a market rate manager costing $130,000 a year including superannuation, has SDE of $500,000 and EBITDA of $370,000.

SDE only holds together where one working owner runs the business. Two working owners, or an owner plus a general manager, and it stops meaning much without further adjustment. Whichever base is used, it has to be measured the same way on both sides: the comparable evidence and your business. APES 225 paragraph 5.2 requires a valuation report to communicate the approaches and methods used, which is the standard’s way of saying the base gets written down.

Only to the extent your wage exceeded the market rate for the work you actually do. If you work 50 hours a week in the business, the buyer or the buyer’s manager will work 50 hours a week in the business. The cost does not disappear because the person changed.

A buyer’s accountant substitutes a market rate wage including superannuation, and looks for evidence of the hours worked and the market rate for the role. Where you work unpaid or underpaid, the adjustment runs the other way: reported profit is overstated for a buyer who has to hire, so it comes down rather than up.

This is the item argued hardest at the smaller end of the market, and it is the reason the base matters. Add the whole wage back and you are quoting SDE. Substitute a market manager and you are quoting EBITDA. Both can be correct. Only one of them can be paired with any given multiple.

Marketing that produced the revenue, for one. If the revenue was won with the advertising spend, the spend is a cost of producing the revenue, and a buyer will not add back the marketing and keep the sales. Repairs recharacterised as one off in an asset heavy business go the same way, because a buyer treats a three year pattern of one off repairs as run rate.

Government support payments are deducted rather than added back, because they are not recurring revenue. Bad debts written off in one year but recurring across three get averaged. Your own overtime, unpaid family labour and doing the books yourself are real costs the buyer has to fund, so they are deductions from earnings, not add backs.

Two refusals are absolute. An adjustment with no ledger line behind it does not survive due diligence, because a buyer’s accountant works from the general ledger. And income that was never declared cannot be paid for: a buyer cannot pay for earnings that cannot be evidenced, and presenting them is a disclosure problem under section 18 of the Australian Consumer Law as well as a tax problem for you.

APES 225 Valuation Services is the professional standard issued by the Accounting Professional and Ethical Standards Board. The current version was issued 25 October 2024 and is operative for valuation services commencing on or after 1 January 2025, superseding the September 2023 version. It binds members of CPA Australia, Chartered Accountants Australia and New Zealand and the Institute of Public Accountants.

It matters because it decides what your report is allowed to claim about itself. The standard defines three engagement types and sets out, at paragraph 5.2, what a written valuation report must communicate. Paragraph 6.1 requires working papers documenting the basis and method of every calculation, determination and estimate.

It is free to download from the APESB website. If you are paying for a number, read the engagement letter against the standard before you pay, because the engagement type you commission decides what the number will be worth to a bank, the ATO or a court.

In a calculation engagement, you and the practitioner agree in advance which approaches, methods and procedures will be performed. The output is a Calculated Value, which may be a single amount or a range. Paragraph 5.2(q) of APES 225 requires the report to state that a valuation engagement may have produced a different result.

In a valuation engagement the practitioner is free to employ the approaches, methods and procedures a reasonable and informed third party would perform. The output is a Conclusion of Value. A limited scope valuation engagement sits between the two: it produces a Conclusion of Value, but the scope restriction is disclosed and paragraph 5.2(p) carries the same warning.

APES GN 20, issued January 2020, makes it your job as the client to decide which one to commission, and names the factors that bear on the choice. Greater reliance on the value, greater significance of the value to you, and disclosure in a public document all point to a less limited scope. A calculation engagement is fine for a first conversation about whether to sell. It is not the evidentiary basis for a family law property settlement or an ATO position.

Ask your lender what it will accept before you pay for anything, because the requirement varies by lender and by product. Banks lend against security and serviceability, and there is little security in goodwill. For goodwill and for plant, lenders generally look for a valuation from an appropriately qualified valuer or an equipment valuer.

The structural problem with an appraisal in a lending context is not the care taken over it. It is that the person who prepared it would be paid on the sale. APES 225 paragraph 8.2 prohibits contingent fees where a valuation service requires independence, which tells you how the professional standard treats that arrangement.

Treat a market appraisal as what it is: an informed opinion of likely selling price, prepared to bring the business to market. It is the right tool for deciding whether to sell and at what price to list. It is the wrong tool for a credit submission.

The ATO does not publish a blanket rule naming broker appraisals. What it publishes is a credibility hierarchy: “Valuations undertaken by professional valuers are more credible than those provided by someone who isn’t a professional valuer”, in guidance last updated 22 June 2026. The valuation must also be objective and supported with appropriate evidence.

Its guidance for privately owned and wealthy groups, last updated 21 May 2025, says that where you dispose of the business to a related party, you should get an independent valuation of the business, including the goodwill, assets and contractual rights being disposed of. A person paid a commission on the sale is not independent of it.

So for a related party sale, a maximum net asset value calculation under section 152-15, or the apportionment of the sale price across assets, the appraisal is not the evidence. The same ATO guidance expects records of the apportionment of the purchase price to the various assets and the basis for that apportionment.

At minimum: the purpose of the valuation, the scope, details of the asset being valued, the date the valuation was conducted and whether it is retrospective, the date of any inspection, the records explaining the basis of the value, and the value itself. That list comes from the ATO market valuation guidance, last updated 22 June 2026.

The ATO also states that generally, if you engage and properly instruct a professional valuer, you will not be liable for penalties if it later finds the valuation deficient. That is the practical argument for spending money on a proper valuation in a related party sale. It is penalty protection, not decoration.

The words properly instruct carry weight. An instruction that limits the valuer’s scope, followed by reliance on the report as though the scope had not been limited, does not attract the same protection.

That is decided by Division 152 of the Income Tax Assessment Act 1997, not by the sale price. Entry is through an aggregated turnover of less than $2 million a year, or the $6,000,000 maximum net asset value test in section 152-15, or one of the partnership and passively held asset tests. Then the asset has to pass the active asset test.

Two identical businesses sold for the same price can leave the owner with net proceeds that differ by hundreds of thousands of dollars. The difference comes from whether the entry tests are met, whether the asset is an active asset, and whether the sale is structured as an asset sale or a share sale.

The retirement exemption lifetime limit is $500,000 per individual, and the CGT cap for superannuation contributions is $1,935,000 for 2026-27, up from $1,865,000 for 2025-26. Your accountant answers this question, not your broker, and the answer should be worked out before you sign, not after.

You need to satisfy the basic conditions, have owned the CGT asset continuously for the 15 year period ending just before the CGT event, and either be 55 years or older with the event happening in connection with your retirement, or be permanently incapacitated, in which case there is no age requirement.

The ATO treats retirement as requiring at least a significant reduction in the number of hours you work or a significant change in your present activities. For a company or trust, a significant individual must have existed for at least 15 years of the whole ownership period, though it does not have to be the same person throughout.

Where it applies, the entire capital gain is disregarded and it is applied before the other concessions. An amount exempted under it can also be contributed to superannuation under the CGT cap of $1,935,000 for 2026-27, but only if the CGT cap election form reaches the fund no later than the time the contribution is made.

They are different transactions with different tax outcomes, different liabilities transferring and different rules. In an asset sale you sell the business. In a share sale you sell the equity in the company, which means the company’s debt, its tax history and its contingent liabilities all go across with it.

A share sale engages extra conditions for the small business CGT concessions: the 80 per cent test on the market value of active assets, the CGT concession stakeholder conditions, and a connected entity control percentage modified down to 20 per cent from the usual 40 per cent. It also changes what is being valued.

Shares in a private company are a financial product under section 764A(1)(a) of the Corporations Act 2001, and arranging for a person to acquire or dispose of a financial product can be the provision of a financial service under section 766C. Tony Pope does not hold an Australian financial services licence and does not advise on share transactions. Your accountant and solicitor decide the structure.

Frequently from nowhere you can check. Australian small business sale prices are not registered anywhere public, the way a land transfer is. Bizstats, operated by the Australian Institute of Business Brokers, holds contributed and anonymised deal data but is not open to the public, so you cannot independently verify a figure taken from it.

The clearest measure of how thin the disclosed data is comes from Grant Thornton’s Dealtracker, published April 2025. It analysed 1,591 Australian transactions over the 18 months to 31 December 2024. About 461, or 29 per cent, disclosed a value, and only about 82, roughly 5 per cent, disclosed enough financial detail to compute an EBITDA multiple.

Those 82 deals are corporate and mid market transactions. They say nothing about an owner operated business turning over $1.5 million a year, because the businesses are not comparable in risk, in buyer pool or in transferability. That is why no industry multiple range is published on this page.

Because concentration widens the range of outcomes for the buyer without raising expected earnings. One customer at 40 per cent of revenue does not reduce the expected number. It widens the distribution around it, and a buyer facing a wider distribution demands a higher return, which is a lower multiple.

It shows up three ways: a lower multiple, a larger deferred or earnout component, and a longer handover or restraint. It is worse where the relationship is personal to you, where there is no written contract, where the contract has a change of control clause, and where the customer is itself in a cyclical sector.

It is less bad where the customer has switching costs, long tenure and a written agreement that survives the sale. Fixing this takes time rather than negotiation, which is the argument for finding out where you stand a year or two before you intend to go to market.

Then asset backing sets the answer rather than the floor. Net asset backing values the business at the net realisable value of its assets less its liabilities. If the earnings method produces less than that, a rational owner would realise the assets and pay out rather than sell as a going concern.

It binds where the business is asset heavy and earnings are thin against the capital employed, where earnings are negative, erratic or only recently established, and where a buyer is really purchasing plant and a customer list. Where the business owns its premises, the property is usually valued separately by a real property valuer and the business valued on earnings with a market rent charged.

The value basis matters more than the method. The same machine has three defensible numbers: written down value in the depreciation schedule, which is a tax construct rather than a market value, replacement value, and market value. Use market value, and get an equipment valuer where the plant is material. Those same values feed the $6,000,000 maximum net asset value test in section 152-15.

Saleable trading stock is commonly excluded from the quoted price and counted at or immediately before settlement, then added at an agreed value. That stops a buyer paying an earnings multiple on inventory, because stock is a dollar for dollar asset rather than an earnings generator.

The contract has to set the basis of value, usually the lower of cost and net realisable value, with cost being your landed cost excluding GST. Retail value is not a stock at valuation basis and should never be agreed. The contract should also define what counts as saleable, cap the amount the buyer must take, and name who counts and who resolves a dispute.

Section 70-90 of the Income Tax Assessment Act 1997 provides that where you dispose of trading stock outside the ordinary course of business, your assessable income includes the market value of the item on the day of disposal, and subsection (2) provides that the amount actually received is not included. A bulk sale of stock with a business is outside the ordinary course. An artificially low stocktake figure agreed to move a deal does not change your tax position.

It is the net short term funding the business needs to trade: trade debtors plus useable stock plus prepayments, less trade creditors, accrued expenses and any employee entitlements the buyer assumes. In a business asset sale cash at bank is usually yours. In a share sale cash is part of what is bought, and the price is expressed cash free and debt free against a working capital target.

A buyer paying a multiple of earnings is paying for a business that can produce those earnings. A business handed over with no stock and no debtors cannot produce them without the buyer injecting cash on day one, and that injection is extra purchase price the buyer never agreed to.

A properly drafted contract sets a target, usually the average of the preceding 6 or 12 months on a stated formula, prepares completion accounts after settlement using the same formula and the same accounting policies, adjusts the price dollar for dollar against the target, and names an independent accountant to determine disputes. The formula has to be identical on both sides of the comparison or the adjustment means nothing.

Cash at bank is typically yours in a business asset sale. Working capital is not. If in the final two months you chase every debtor hard, stop buying stock, stretch creditors and take the cash out, you have not made money. You have converted working capital into cash and handed over a business that needs refinancing on day one.

Where a target mechanism exists, the price adjusts down by the shortfall at completion. Where no target mechanism exists, the buyer finds it during due diligence or at handover, and it becomes a renegotiation or a termination.

Whether you keep the debtors and pay the creditors, or the buyer takes both, is a commercial choice. It just has to be one choice, applied consistently, priced into the deal and written into the contract. Half of each is where the disputes come from.

Not if the sale qualifies as a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999. The conditions are that the supply is for consideration, the buyer is registered or required to be registered, and you and the buyer have agreed in writing that the supply is of a going concern.

The supply also has to be one under which you supply all of the things necessary for the continued operation of the enterprise, and carry on the enterprise until the day of the supply. GSTR 2002/5, issued 16 October 2002, is the ruling that interprets the section, and it reads necessary as meaning essential to continued operation rather than every asset used.

The agreement in writing is a contract term, not an afterthought. Get it drafted by your solicitor and confirmed by your accountant before the contract is signed, because the section will not be satisfied retrospectively.

No. A valuation is an estimate of the price a hypothetical willing but not anxious buyer and a hypothetical willing but not anxious seller would agree. A sale price is what one real buyer, with real finance and a real alternative use for their money, agreed with you on one particular day.

Between the two sit four things: the size of the buyer pool, the availability of finance to that pool, the time and disclosure the sale is given, and the deal structure. A headline price with 40 per cent deferred over two years subject to performance is not the same number as that price in cash at settlement.

Even ASIC’s guidance for expert reports, RG 111 published 22 October 2020, says at RG 111.95 that an expert should usually give a range of values, and at RG 111.96 that the range should be as narrow as possible. That guidance applies to transactions under the Corporations Act rather than to an owner operated business sale. The principle transfers: a single point estimate overstates the precision available.