What Makes a Business Valuation Reliable?
Updated: 1 day ago
Key takeaway: A valuation is only as reliable as its purpose, its information and its reasoning. The figure matters less than whether a buyer, a court, the ATO or an auditor can follow how it was reached and accept the assumptions behind it.
Background
Businesses are valued for many reasons: a sale or acquisition, a shareholder exit, a restructure, a capital raising, a tax event, a dispute or financial reporting. Each purpose can call for a different standard of value and a different level of work. Two valuations of the same business can differ legitimately because they answer different questions.
In Australia, Chartered Accountants who provide valuation services must follow APES 225 Valuation Services. The current version was issued in September 2023 and applies from 1 January 2024. It distinguishes three types of engagement:
a valuation engagement, where the valuer is free to apply the approaches and methods they consider appropriate;
a limited scope valuation engagement, where the scope or information is restricted; and
a calculation engagement, where the client and valuer agree the approach and methods in advance.
The report must state which type was performed. A calculation is not a full valuation, and should not be relied on as one.
The features of a reliable valuation
A clear purpose and standard of value. Market value, fair value under AASB 13, and value for a particular buyer are different concepts. The report should say which applies and why.
A defined valuation date. Value is measured at a point in time, using information known or knowable at that date.
Good information. Audited or reviewed accounts, management accounts, forecasts and an understanding of the business and its industry.
Normalised earnings. Adjustments for one-off items, owner salaries above or below market rates, related-party rent and similar distortions, each explained.
An appropriate method, cross-checked. Common methods include capitalising future maintainable earnings, discounted cash flow, net assets and market transaction evidence. A primary method should be tested against at least one other.
Supported assumptions. Growth rates, margins, capital expenditure and discount rates should be tied to evidence, with sensitivity analysis showing how value changes when they move.
Proper treatment of the interest valued. A controlling interest, a minority holding and shares with restricted transfer rights may warrant different values.
Independence and competence. The valuer should be independent of the outcome and experienced in the type of business and purpose.
Why it matters now
Interest rates have risen by a full percentage point in 2026. Higher rates generally raise discount rates and lower the multiples buyers will pay, so a valuation prepared even a year ago may now overstate value. Valuations used for tax, transactions or financial reporting should be current.
Who is affected
Owners planning a sale or succession, shareholders in a dispute or exit, companies issuing equity or share-based payments, and groups restructuring or transferring assets between related entities.
Commercial implications
An unreliable valuation is expensive. It can mislead a negotiation, fail to persuade the ATO, be rejected by an auditor or a court, or leave directors exposed when shares are issued or transferred. A well-documented report saves time and argument later.
Recommended considerations
Agree the purpose, standard of value and valuation date in the engagement letter.
Decide whether you need a full valuation or whether a calculation will meet the purpose.
Gather at least three years of financial statements, current management accounts and forecasts.
Identify normalisation adjustments and the evidence for them.
Ask for sensitivity analysis on the key assumptions.
Refresh valuations that pre-date this year's interest rate increases before relying on them.
Sources
Speak with Reset Group. We prepare business, equity and share-based payment valuations for transactions, reporting, tax and disputes. Call +61 2 8208 3314 or email info@resetgroup.com.au.
General information only, current at 30 October 2026. It does not take your circumstances into account and is not advice. Liability limited by a scheme approved under Professional Standards Legislation.
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