Business valuation methods for established businesses in Australia

There is a number of valuation methods which can be used to determine business value of an established private business. However, no one business valuation method is definitive. Hence, it is common practice to use several methods in such valuations. Some of the most common business valuation methods used to value established private businesses in Australia are reviewed below.

Income-approach methods

Capitalisation of Earnings method (also referred to as Capitalisation of Future Maintainable Earnings, FME) is most commonly used in Australia to value established private businesses with a history of profit. Under this income-approach method, the business value is calculated by dividing the expected future maintainable earnings by an appropriate capitalisation rate. To ascertain the expected future earnings, the FME method puts a significant focus on the analysis of the business’ past earnings. It also delves into the business’ ability to maintain these earnings.

Market-approach methods

Comparable Transaction method is a market-based method which values a business against recent transactions – mergers and acquisitions – of comparable businesses in the market. Under this method, such market transactions are analysed to derive various price multiples – multiple of gross revenue, multiple of net sales, multiple of earnings and so on. These multiples are adjusted, where necessary, to reflect how the business compares to the market. They are then applied to derive the business value.

The method is appropriate for private established businesses operating in industries where companies are actively transacted. Moreover, to effectively apply this method, the valuer should have access to the deals’ values and the relevant details.

Asset-approach methods

Asset-approach methods assume that the value of a business rests in its underlying assets. These methods often focus on tangible assets, ignoring values of intangibles such as goodwill or intellectual property. Therefore, asset-based valuation methods can be effectively used to value asset-intensive established private businesses which rely on its physical assets to generate revenue.

By Julia Podgorbunskaya, CPA, Senior Business Valuer at Professional Business Valuers
June 2025

(61) 02 8072 8929
Julia@ProfessionalBusinessValuers.com.au
www.ProfessionalBusinessValuers.com.au