Bill Apps CA specialises in valuing businesses and says no two valuations are the same, and he has never seen one he could describe as straightforward. This is because valuation is as much about data and methodologies as it is about making judgement calls based on intuition developed over years of experience.

“There’s probably as much art in it as there is science,” says Apps, a director in the corporate advisory services division of Baker Tilly Staples Rodway in Auckland.

“An evaluation always starts with the collection of information and analysing financial statements, but that’s only the start of it.”

Valuation also involves sitting down with the business operators and understanding the key business drivers, the environment in which the company operates and issues such as technology trends. For example, is the business in an industry that is threatened by digital technology, or is it positioned to thrive with the rise of trends such as AI?

“Rather than just preparing information about what’s happened in the past, I think business valuation by definition is extremely forward-looking,” says Apps. “That is one of the challenges, because no one has 20/20 foresight, but we are being asked to eventually put a value on cash flows which are yet to occur.”

Professional scepticism

Variables include the valuation of intangibles, such as customer relationships and goodwill. The valuations of shareholder equity could differ if they are controlling or minority interests, or if the equity is privately held rather than traded on a public exchange.

Apps had experience in auditing before he moved into business valuation and he believes this gave him a “healthy scepticism” that has been useful in his new specialisation.

“Auditing was a good basis, but I’ve also developed skills around understanding and pricing risk,” he says. “As valuers, we also try to practise multiple ways of looking at valuation, so it’s not just a numerical exercise.

“That might involve running earnings-type valuations against direct valuations like discounted cash flows, or it might be looking at applied levels of goodwill, and all of this is learned with experience.”

Technical and soft skills at work

At Grant Thornton New Zealand, Jay Shaw CA agrees that valuation requires a “wide range of both technical and soft skills”.

This is what attracted him to valuation, and why he moved into the area from a more traditional accounting role about 20 years ago.

“Valuation is a considered mix of analysis and judgement,” says Shaw.

“The ideal balance results in a valuation which has a strong quantitative base, uses objective data and standardised approaches but is also overlaid by sound valuer judgement and experience.

“That’s not always possible when valuing smaller businesses with less robust information, so the balance needs to tip more to the art than the science and the valuer’s experience and expertise then becomes much more important, and the specialisation comes much more into play.”

Shaw agrees that identifying the drivers of a business is key to understanding it and valuing it.

“For a medium-sized business, a key driver might be when the business has already successfully transitioned from owner manager to separate management,” he says.

“Identifying value drivers means looking through the lens of a buyer about what it really is that makes a business attractive – or not – and how that can be reflected in the valuation.”

Asking the right questions

Fiona Hansen FCA moved into business valuation after working in corporate finance and merger and acquisitions (M&As) and says she much prefers valuation because it is “less lumpy” than M&A, where she would work on many projects only for the deals not to proceed.

Like Apps and Shaw, Hansen thought of valuation as being technical and “full of propeller heads” before she pursued the specialisation.

“It is fine doing the maths, but valuation is not just about throwing numbers into a spreadsheet,” says Hansen, a senior managing director in FTI Consulting’s valuation advisory team in Melbourne.

“You can’t take anything at face value, and you always have to question the status quo and realise that if you don’t understand something then probably half the world won’t either. So that means you need to keep asking questions.”

Follow the money

Data analysis, says Hansen, is critical but it’s important not to “get lost or sidetracked” in the detail when valuation is more about the bigger picture.

Hansen has seen colleagues “scared” of valuing intangible assets but says it’s an area she enjoys.

“With intangibles you’ve just got to get your head around it and get back to basics,” she says. “No-one is going to pay for anything unless it is a contributor to profits, so it’s about understanding where the money is and where it’s coming from.”

Valuation also requires intuition, but this can only be developed as an effective skill with experience. “It’s like driving a car,” says Hansen. “When you learn to drive you have to think about everything all the time, and then it becomes second nature.

“But then, every now and again, you get put into a different kind of car, like a Ferrari, and that’s where you have to approach things in another way but still using those skills you have developed.”

---

What is a business valuation specialist?

A business valuation specialist is an accredited individual who is qualified to determine the economic value of a company or business. These experts develop a thorough understanding of the business, to build a detailed picture of its underlying drivers of value at both a macro and micro level.

What does a business valuation specialist earn?

The salary of a business valuer varies according to skill set and experience, however employment website SEEK lists the annual salary typically starts at A$100,000, while more experienced valuers can make north of A$200,000.

What does a business valuation specialist do?

As CA ANZ explains, ‘a business valuation incorporates the valuation of businesses, securities and intangible assets that are required for a multitude of reasons including accounting, taxation, transactions and disputes.’

What qualifications are needed?

CA ANZ members and affiliate members who successfully complete a business valuation specialist program and meet the practical experience requirements can apply for recognition as a business valuation specialist.

ATO – valuation matters

According to the ATO market valuation guidelines, ‘business valuers traditionally have significant experience in areas such as financial markets, investment banking, corporate finance or corporate management, and academic qualifications in areas such as accounting, finance or economics.’

---