Value, price, and proceeds are different
| Term | Meaning |
|---|---|
| Valuation indication | An estimate based on defined methods, assumptions, information, and a valuation date. |
| Negotiated price | The amount agreed for specified shares or assets, subject to the transaction documents. |
| Enterprise value | A value concept for the operating business before the agreed treatment of cash, debt, and equity adjustments. |
| Equity value | The amount attributable to shareholders after relevant adjustments. |
| Seller proceeds | What the seller receives, when, and on what conditions, after transaction mechanics, costs, and tax. |
Two proposals with the same headline value can have different economic and risk outcomes because of working-capital adjustments, debt, escrow, earn-outs, vendor finance, rollover equity, warranties, and conditions.
Define what is being valued
The subject may be shares in a company, selected assets, the operating business on an agreed cash and debt basis, or another interest. ASIC explains that a share represents part ownership of a company and that shareholders do not own the company's assets. That distinction matters when comparing a share sale with an asset sale.
Define the entity, interest, valuation date, purpose, intended users, basis, assumptions, and transaction structure before selecting a method.
Prepare evidence before choosing a method
Business.gov.au recommends preparing financial statements, asset details, legal and registration records, market and sales information, procedures, plans, employee information, supplier arrangements, and customer information. It also states that potential buyers may obtain an independent valuation.
Reliable valuation work connects historical accounts to current trading, cash flow, assets, liabilities, working capital, tax records, contracts, owner dependence, and future investment needs.
Use methods that fit the evidence
Business.gov.au says there is no single set valuation method and lists market value, return on investment, asset value, replacement cost, and future profit among common approaches. A professional may use more than one method and reconcile the results.
Income approach
This estimates value from future earnings or cash flow. The result depends on supportable forecasts, margins, capital expenditure, working capital, long-term growth, and risk assumptions.
Market approach
This compares relevant businesses or transactions and adjusts for differences. A quoted multiple is weak evidence unless the underlying earnings definition, size, date, growth, concentration, assets, structure, and payment terms are known.
Asset approach
This considers assets and liabilities and may be relevant for asset-intensive or holding businesses. Book value, tax value, replacement cost, and market value are different concepts.
Test maintainable earnings and business risk
Reported profit is a historical accounting result. A valuation may adjust it to estimate maintainable earnings or cash flow, but every adjustment needs evidence.
- owner remuneration and replacement-management cost
- personal, related-party, or non-operating items
- genuinely non-recurring income or costs
- customer concentration and contract quality
- owner and key-person dependence
- maintenance capital expenditure and working-capital needs
- licensing, compliance, safety, privacy, and remediation issues
- current trading, pipeline quality, capacity, and investment requirements
An add-back is not automatic. A buyer or valuer may accept, reject, or revise it after testing whether the cost is genuinely non-recurring and whether replacement expenditure is required.
Bridge value to the actual proposal
The transaction documents define how value becomes consideration and seller proceeds. Review cash, debt, shareholder loans, working capital, surplus assets, transaction costs, tax, escrow, deferred consideration, earn-outs, vendor finance, and rollover equity.
There is no dependable public multiple for every Australian SME in a sector. Ask what the numerator and denominator mean, which period and adjustments were used, what comparable evidence supports the result, and how structure and payment terms were treated.
Read the Australian sale-readiness guide and transaction-structure guide before treating any valuation as a sale outcome.