Case Studies

We believe in building strong relationships with our professional partners and knowledge sharing. We regularly publish Case Studies, using scenarios to illustrate the sometime complex interplay of business, finance, regulation and ethics facing the accounting professional today.

Professional Indemnity Insurance and Business Valuations

Professional Indemnity Insurance and Business Valuations

Professional Indemnity Insurance Buying a Business Independence

A valuable relationship of professional trust, built up over time, often finds Accountants being asked by regular clients to provide services outside their regular sphere of expertise. Common situations include advising in relation to the purchase or sale of a business where perceptions of bias may call into question the independence of financial analysis. Another issue, often not as apparent, concerns the delivery of professional services and exposure in relation to the coverage afforded by PI insurance.

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Partner Buy-outs and Business Valuations

Independence Partnership Dissolution Valuation Methodology

Two business partners operate a fitness centre through a company structure. The Directors have chosen to end their partnership as one wishes to leave the business. The firm’s Accountant has been asked to undertake a valuation of the business to enable the buy-out to proceed. Naturally, each of the Directors are hoping the report delivers a different result, leaving their Accountant conflicted.

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Divorce and Business Valuations Explained

Divorce Single Expert Witness Report Family Law

Many people going through the process of divorce are business owners. Family businesses are usually small and can be complex to value. Unfortunately placing a value on a family business is not clear cut and can be an area of contention for many people. This paper looks at the options available which, if approached in the correct way, can result in a cost effective outcome.

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Enterprise, Equity, Goodwill and
Business Valuations Explained

Enterprise Valuation Equity Valuation Goodwill

A key consideration of every business valuation is determining exactly what requires valuing. Is it the business enterprise, shares in the holding company, goodwill or all of the above? This paper seeks to clarify the differences between an Enterprise Valuation and an Equity Valuation and outline how Goodwill is calculated.

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Probate and Business Valuations

Probate Share Class Valuation Private Investment Company

Mr Gold, a partner in a Melbourne Accounting firm, was entrusted as executor of his late father’s will. His father, Mr Gold (Senior), had been retired for many years and had previously been a long-term partner in one of the city’s leading Law firms. Upon dealing with his father’s estate and the application for the grant of probate, it became apparent that his father’s private investment company would require a more detailed valuation of assets.

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The Australian Taxation Office and
Business Valuations Explained

Australian Taxation Office Standards Reports

Not every situation or transaction fits neatly within the Australian Tax Office’s (ATO) laws and regulations as they stand. There are often circumstances where variables come into play, for example, when the value of something needs to be determined, such as plant, property and businesses. When does the ATO require an independent valuation and what do they require within that valuation?

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Share Buy-Back and Business Valuations

Employee Share Scheme Fair Market Value Independence

A small parcel of a company’s shares are held by its employees. The arrangement was inherited many years earlier, when two businesses merged. Now, in challenging market conditions, neither the remaining employees nor the major shareholders were satisfied with the arrangement for a number of reasons. Negotiating a solution would require many discussions and consideration of alternative proposals. But, before any progress could be made, it was necessary to establish the fair market value of the shares in question.

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Employee Buy-In and Business Valuations

Buying a Business Fair Market Value Independence

A long-serving and loyal employee is finally presented with the chance to purchase a successful business upon the retirement of the original owners. The succession plan was not a new one, but important details such as price expectations had never been discussed, let alone agreed upon between the parties. Unfortunately, the price the sellers set differed considerably from the buyer’s expectation, placing her in a difficult situation. Her challenge was to find a way of completing negotiations without impacting a long-standing relationship.

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Valuing Intellectual Property Licences

Licensing Royalty Rates Intellectual Property

A software developer is enjoying significant success with a product deployed in call-centres. The unique product has attracted the attention of a number of large firms keen to acquire the software for themselves. The developer would prefer to retain control and license the product to others. The developer has a challenge: how to properly weigh up the offers to buy the Intellectual Property rights against the long-term income that would be derived from licensing the software.

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Industry Method applied in Business Valuations

Valuation Methodology Buying a Business Succession Planning

The price for the sale of a real estate franchise is under negotiation, with both buyer and seller failing to agree on the appropriate business valuation method to use. A third party professional was engaged to provide not only an independent fair market valuation, but to test and validate the most appropriate methodology to apply in the situation.

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Immigration and Business Valuations

Immigration Valuation Methodology Independence

Jean-Claude Burgundy and his family immigrated to Australia from France under a provisional visa. They had been living in Australia for three years operating a wholesale pattiserie business. To become permanent residents, they now needed to now apply for a class 890 Business Owner Visa. Under the requirements of the Department of Immigration and Border Protection an independent business valuation on their family business was required.

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Restructures and Business Valuations

Restructure Tax Superannuation

After purchasing a small business some years earlier, the new owner has managed to double the size of his enterprise. Coupled with the increased income is, of course, an increased tax burden. The business owner would like to be more in control of his tax instalments, and make some of his interest tax deductable. A meeting with his Accountant led both to conclude an independently conducted business valuation would be helpful.

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Employee Share Schemes and Business Valuations

Employee Share Schemes Complex Valuations Independence

To help retain experienced employees, a mid-sized IT consulting company formulated an employee share scheme. Due to the significant number of users relying on the valuation, and the size and complexity of the company, a premium business valuation report was required.

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Owner Remuneration and Business Valuations Explained

Owner Remuneration Valuation Theory Normalising

When assessing the value of a business, it is necessary to take account of variables in both a firm’s accounts and its approach to conducting business. Such reviews help to establish a credible value in the context of the broader market place. Often it is necessary to adjust the earnings of a business to take into account any abnormal or discretionary income and/or expenses. The most common, and often significant, adjustment concerns remuneration payments to business owners.

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Business Valuation Multiples and
Capitalisation Rates Explained

Valuation Multiples Capitalisation Rates Risk Profile

Determining the appropriate valuation multiple, or capitalisation rate, is often the most difficult task when valuing a business. When considering the value of a business, it is not uncommon or surprising for experienced Valuers to hold differing opinions as to the most appropriate multiple to apply. Unlike other professionals, for example in the real estate industry, business Valuers often do not have the benefit of a reliable pool of sales statistics to compare. They therefore must rely on other methods to determine the most appropriate multiple to apply.

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Divisional Splits and Business Valuations

Divisional Splits Restructure Valuing a Start-Up

Red Dirt Ventures services the mining industry. The company has recently developed an innovative new product. To assist with attracting investment, and to separate the new venture from the company’s core activities, it was necessary to establish the market value of the new division.

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Risking a Tax Office Valuation

Independence ATO Corporate Restructure

As part of a regular review process, sometimes the Australian Taxation Office will conduct their own business valuations. In this case, a relatively straight-forward internal restructure triggered the ATO stepping in to conduct a business valuation. During a routine review of one SME the ATO discovered a restructure, dating from several years prior, which had been enacted without an independent Business Valuation. The ATO’s internal valuation resulted in a bill of over $100k in back taxes, interest and penalties being issued.

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Start-Ups Methodologies Venture Capital

The dawn of the digital age, and the evolution of the smart-phone as an essential part of daily life, has seen a quantum increase in the number of start-up businesses. But the challenge every start-up entrepreneur has faced remains: mounting a convincing and believeable pitch that will secure the much-needed funding to germinate the seed of a business idea and grow it into a full-fledged, successful business operation. This Bizval paper is intended to shed some light on aspects of this oft-confusing process.

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Minority Discounts and Business Valuations

Minority Discounts Partnership Dissolution Shareholder Value

The resignation of a partner in a well-known law firm triggered disagreement as to the value of the departing partner’s shareholding. Fortunately, the firm’s shareholding agreement foresaw this eventuality. It specified an independent business valuation be commissioned to resolve any dispute. The shareholding in question represented a minority interest, adding a further layer of complexity. Discounts to the pro-rata valuation needed to be applied.

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Buy/Sell Insurance and Business Valuations

Buy/Sell Insurance Succession Planning Balance Sheet Reporting

This mid-sized construction company took a pro-active approach to insuring Directors. By obtaining an independent business valuation report on a yearly basis, the company avoids any future disputes amongst Director’s and their families.

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Professional Independence and Business Valuations

Restructure CGT Independence

A discussion with the ATO helped one Accountant elect to engage an independent business valuer. The Accountant was in the process of restructuring a clients business and determined the business held no goodwill. While his assessment was correct, an independent valuation was sought to allay any possible future issues with the ATO.

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Valuation Methodology and
Business Valuations

Valuation Methodology Methodology Testing Applying Methods

Accountants and Business Owners are frequently curious to understand the science behind a professionally executed valuation. Determining the most appropriate valuation method is the first step. This paper outlines the process a Valuer undertakes to help determine the most appropriate and valid valuation method to apply in each situation.

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Small Business CGT and Business Valuations

CGT Small Business Concessions Restructure Succession Planning

An independent business valuation compiled by an expert helped one accountant crystallise a capital gain while their client was still within realm of the ATO small business CGT concessions. The subsequent sale of the business resulted in non-concessional CGT only being paid on a smaller portion of overall the gain.

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Intellectual Property and Business Valuations

Intellectual Property

Green Light Group Pty Ltd is a small electrical and solar company that have developed a new energy saving in-home application. While they have secured patents and developed the technology, the company requires a capital injection to progress the technology to market. After several rounds of discussions with an international investor, Green Light’s Directors make the decision to obtain an independent valuation of their Intellectual Property.

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