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The Importance of Business Valuations

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This memo was drafted by HHMC on 15 February 2013.
Category: Business Management Sub-category: Professional Practice

“If business schools could offer just one course, it would not be on stock trading, the efficient market hypothesis or modern portfolio theory. Rather, B-schools should be encouraging students to learn the boring, but critically important, discipline of business valuation.” Warren Buffett.

This quote from Warren Buffet neatly points out the importance of business valuations. Having a realistic understanding of the value of your business or the value of your shares in a business is critical to personal decision-making and planning. Privately owned businesses don’t have as easy a mechanism to determine market value as do publicly traded companies, however, there are many sound reasons for SME recruitment companies to become aware of their current value.

Why have a valuation done?

There are a range of reasons that business owners require a valuation. These include:

  • commencing a sale process,
  • resolving shareholder disputes,
  • for business planning and future decision-making,
  • determining tax obligations,
  • for litigation purposes (including divorce),
  • to access external sources of funding.

While there are a number of accepted methods for calculating the value of a business they can vary substantially in terms of result. We believe an appraisal based on market value is the most relevant in the majority of circumstances. This provides an up-to-date view of the business value in the event of a market sale. Ultimately any business is worth what the market is willing to pay at a particular point in time. However well presented it is; a valuation that is well above the market norm is not going to influence experienced buyers to pay more.

Business sale

Having a market valuation prepared prior to starting a sale process is a key step in understanding your business position. If properly undertaken, the valuation will give an accurate gauge to the price range you may achieve and is an essential starting point for any future negotiations. It can also be a reality check for those whose expectations are out of line with current market circumstances. In those cases an honest assessment provides the best means for decision-making: continuing with a sale; or take steps to improve the value in your business for a future sale.

Departing shareholders

There are times when one shareholder wants to move on and exit the business. This may be an amicable parting or arise from months (or years!) of disagreement between the owners.
Usually a departure means that one party wants to sell their shares and that is most likely going to be to other existing shareholders. Even in amicable situations, determining a price for the shares of a departing director can be challenging. An externally prepared market valuation is a very appropriate starting point to determine the business value and those of minority interests.

Business planning

As part of forward planning, any business should be aware of their market value in order to make the decisions necessary for the future. Understanding the current position enables business owners to make choices about the approach they want to take for their business in the future.


A business valuation for recruitment companies needs to reflect the industry’s relevant market circumstances and status. Privately owned recruitment companies are affected by a range of determinants that impact on pricing at the time of sale. Analysing the factors that determine pricing requires an intimate knowledge of the recruitment industry and the comparative values achieved around the country.

HHMC works with shareholders to improve their businesses through offerings related to strategic planning, growth, corporate efficiency, marketing and the development of Directors. Our acquisitions and divestments focus brings a structured approach to planning and executing transactions between private, Australian listed and international organisations. HHMC utilises market knowledge and corporate experience to ensure rigorous assessment leading to positive equity results. For further information contact Richard Hayward on +61 2 9925 2218 or richard.hayward@hhmc.com.au; or Rod Hore on +61 2 9925 2246, or rod.hore@hhmc.com.au.


This memo has been drafted by HHMC to assist RCSA Members with a general understanding of the subject matter. This memo does not purport to be an exhaustive statement of all best practice requirements in the area. It is provided to RCSA Members as a guide only.

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