When is a business worth more than its books?
In this insightful interview, Liam Bailey from O’Brien Palmer sits down with valuation expert Stephen Groves from Groves & Partners, to unpack the complexities of valuing businesses, particularly in the SME space where goodwill and intangible assets often spark debate.
The conversation centres around how businesses are assessed in both distressed and going concern scenarios, and how fair valuations can help ensure pre-pack transactions are legally sound and commercially viable.
Stephen addresses some of the most common client concerns:
- “My business is just me, how can it have value?”
- “We’ve had a rough couple of years, does that mean it’s worthless?”
The answer isn’t simple, but it’s not hopeless either. While it’s true that businesses heavily reliant on a single owner-operator often present risk to potential buyers, Groves emphasises that the right approach to valuation doesn’t mean writing the value down to zero. Instead, key risks such as customer transition, reliance on relationships, and recent trading history are factored in and appropriately discounted.
Key Insights:
- Going Concern Market Value: This is the gold standard. Valuers aim to determine what a willing vendor would reasonably accept in a fair market sale, not under distress, but under reasonable and prudent commercial conditions.
- Discounting for Risk: Where relationships or revenue rely too heavily on the existing owner, the value is adjusted downward, but not eliminated, based on risk-weighted projections.
- Customer Handover: Assumed buyer scepticism means the more a business relies on personal relationships, the more essential it is to plan for a credible customer handover.
- Avoiding Phoenix Risk: Directors involved in a pre-pack sale must ensure their valuations are independently formed, conservatively priced, and above reproach.
Groves & Partners brings deep expertise to this field, often working hand-in-hand with advisors, insolvency professionals, and business owners to determine fair, transparent valuations that consider the full context of the sale, especially where financial distress is a factor.
We’re here to help you get the right outcome, the right way.
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📧 Email: obp1@obp.com.au
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