Why does the method depend on what is being valued?
The ATO describes three internationally defined approaches: the market approach, based on prices in comparable transactions; the income approach, based on the income or cash flows an asset can be expected to generate; and the cost approach, based on what it would cost to replicate the asset. Within each approach sits a range of methods, and the ATO says the valuer must choose the most appropriate method for the asset.
For agencies, the right choice turns on two questions. What is being valued: a book of clients, a whole operating business, all its shares or one owner's parcel? And what does the income look like: recurring, transactional, contracted or running down? A rent roll, a recruitment firm and a trail book can each need a different main method.
How does capitalisation of maintainable earnings work?
It is usually the main method for an operating agency. The valuer restates the accounts to the profit a buyer would actually earn, by pricing the owner's work at a market cost, setting related-party rent to market and removing one-off items. The result, maintainable earnings, is capitalised at a multiple that reflects the risk of those earnings: client concentration, key people, contract terms and growth. That gives enterprise value, which is then bridged to equity for a share sale.
The ATO lists lack of support for adjustments to a capitalisation multiple among the common issues it sees, so the multiple needs evidence and reasons, not a rule of thumb. Illustration only, not a market multiple: the bridge below uses hypothetical, rounded figures.
| Step | Hypothetical agency | Note |
|---|---|---|
| Enterprise value concluded for the business | $2,000,000 | Hypothetical figure |
| Add surplus cash beyond working needs | $150,000 | Trust money and client money excluded |
| Less bank debt | ($300,000) | Owed by the company |
| Less amounts still owed for an earlier acquisition | ($100,000) | For example, a book bought on terms |
| Less employee entitlements owed by the company | ($50,000) | Such as accrued leave |
| Equity value of all the shares | $1,700,000 | Before any adjustment for a part parcel |
When is a multiple of recurring revenue used?
For books of recurring income that a buyer can absorb into its own operation, such as rent rolls and insurance books, prices are often discussed as a multiple of recurring revenue. The method can work as a lead or a cross-check if the income base is defined precisely: which fees, which period, excluding GST, and after removing income already leaving.
Its weakness is that it ignores cost. Two books with the same revenue can need very different staff time to service, and a revenue multiple from another deal carries that deal's location, date, terms and buyer with it. A valuer restates any comparable onto the same income base and tests the answer against earnings after servicing cost.
When does discounted cash flow fit?
Discounted cash flow projects income year by year and discounts it to the valuation date. It fits income that changes in a predictable way: mortgage trail that runs down as loans are repaid, contracted income with known end dates, or an agency moving through a clear change. Its strength is that every assumption, such as run-off, cost growth and the discount rate, is visible and can be tested. Its weakness is that small changes in those assumptions move the answer, so each needs support from the agency's own records.
Why are net assets a floor rather than the main method?
Most agencies own little beyond desks, computers and receivables; their value lies in client relationships and people. Net assets therefore understate a profitable agency, but they set a floor: an informed owner would not sell for less than the business would realise if wound up in an orderly way. For an agency that is losing money with no credible path back, net assets can become the main method. Trust money and client money are excluded, because they belong to clients.
Why does a valuer use more than one method?
Because each method checks the others. When capitalised earnings and transaction evidence disagree, the gap usually has a reason worth finding: a sale that included synergies one buyer could make, a different location or fee level, or deal terms that held back part of the price. The report says which method carries the most weight and why, rather than averaging. Our reports follow the guidelines of APES 225 Valuation Services. The table is a guide to judgement, not a fixed rule.
| What is being valued | Main method usually | Cross-checks |
|---|---|---|
| Rent roll sold on its own | Comparable sales on a defined recurring income base | Capitalised or discounted net management income |
| Whole real estate agency | Rent roll plus capitalised earnings of the sales business | Earnings of the agency as a whole |
| Insurance book | Recurring brokerage income after servicing cost, capitalised | Comparable sales; earnings |
| Mortgage trail book | Discounted cash flow of net trail | Comparable sales; implied multiple |
| Marketing, recruitment or travel agency | Capitalisation of maintainable earnings | Recurring revenue where it exists; net assets floor |
| Loss-making agency | Net assets on an orderly realisation basis | Earnings if a recovery is credible |
What do we need from you?
The same core records support every method.
- ·Three years of financial statements and the current year to date
- ·Income split by type and by client, excluding GST
- ·Owner and key staff roles and pay
- ·Contracts with your largest clients, suppliers or licensees
- ·Loan balances and any amounts owed for earlier acquisitions
- ·The purpose of the valuation and the valuation date
What does an agency valuation cost?
Every valuation is a fixed fee, agreed in writing before work starts, and it does not change with the value concluded. The band is set by the annual revenue, excluding GST, of what is being valued: a rent roll's annual management income, an insurance or mortgage book's annual recurring income, or a whole agency's total annual turnover. Exactly $3 million is Medium; exactly $10 million is Large.
Add-ons are $495 per retrospective (past) valuation date and $795 per additional entity. Delivery time starts once payment and all required information have been received.
| Package | Annual revenue of what is valued | Fee | Delivery |
|---|---|---|---|
| Small Business Valuation | under $2 million | $1,495 + GST | 2 business days |
| Medium Business Valuation | $2 million to $3 million | $2,495 + GST | 3 business days |
| Large Business Valuation | $3 million to $10 million | $3,495 + GST | 3 business days |
| Over $10 million | above $10 million | quoted in writing before work starts | delivery date agreed before commencement |
| Expert report (dispute or court) | any size | $4,495 + GST | delivery date agreed before commencement |