Going Concern businesses are operated from (mostly) purpose built properties (land and building), and it is the business that a seller sells and a purchaser buys in a transaction.
There is often associated real estate that forms an integral part of the overall business. That property and the business are sold via two contracts of sale (real estate and business contracts) as a going concern on a walk in (purchaser) – walk out (seller) basis.
Here are some examples:
- Child Care Centre’s
- Management and Letting Rights
Fundamentally a Valuer is assessing the market value of these businesses has to hand the Accounting numbers, including a Profit & Loss for sale purposes and often a Balance Sheet. His role is to consider the identified Net Operating Profit (NOP) the business generates and to apply a market derived yield or multiplier factor. He will also consider the overall Return on Investment, being the relationship between total purchase price and the NOP.
There is more to the exercise than simply having a stab at a yield or multiplier….
No truer word is said in that every property and every business is different in some aspect or many ways. Real estate and businesses are not mass produced in Australia and having knowledge of this an experienced valuer will ‘dig into’ the market evidence upon which he is going to base his assessment on.
In our world this is the analysis phase of the job. The NOP is simply not adopted as being correct, despite the figures having been provided by an Accountant. The major income and expense items within the P&L are compared to Industry Average data for similar type businesses. Then there are a series of dollar value calculations made for the subject business and the market evidence so as there are some common denominators to assist the market value assessment process.
In summary there are a number of valuation methods of assessment for Going Concern type businesses/properties. Whilst some change for the different types of business fundamentally this style of analysis provides the platform for a ‘valuable and objective’ valuation figure – every time.
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